Bella Bridal Shop Inc. makes customized wedding gowns and accounts for these gowns on a Job Order cost accounting basis. The customer selects a pattern for the basic gown and then selects fabric and trim. Once the design and the materials have been agreed upon, a statement of estimated cost is signed by the company and by the customer.
Overhead is applied based on the number of days a gown is in process. Usually, five gowns are being worked on at a time. Therefore, each gown is charged 1/5 of a daily estimated overhead amount.
Customer Susan Renner's wedding dress took four days to complete. However, after the first three days had elapsed, Donna Lytle, a movie personality, suddenly decided to get married and ordered a very lavish gown. All other work was suspended and the work on Ms. Renner's dress was delayed six days. The final day of its construction was on the tenth day after it had been begun.
Required:
1. You are the accounting manager for Bella Bridal Shop Inc. Write a memo to the billing department. Instruct them as to the appropriate number of overhead days to charge to Ms. Renner's account and why (EXPLAIN in DETAIL).
2. What are your thoughts on how Bella Bridal Shop Inc. handled this overall situation?