OVERHEAD APPLICATION METHOD

Nash Donuts & Bakery used activity based cost driver to calculate the overhead.

Activity based cost drivers is the factors that effect the costs associated with the activities.

Activity based cost drivers attempt to provide a more comprehensive view of the actual costs

of an activity, such as a manufacturing process. The activity based cost drivers that Nash

Donuts & Bakery used are machine-hour and direct labor-hour.

Machine-hour means the cost of the overhead is calculated based on how long the

machine can work. In Nash donuts & Bakery, machine hour is used as the cost driver for

most of the activities involved in making the donuts and breads. While the direct labor-hour

means the cost of the overhead is calculated based on how long the workers spend their time

to work on the certain activity. In Nash Donuts & Bakery, it is used as the cost driver for the

packaging activity.

In addition, the distribution of wages is calculated differently based on the type of

workers. Nash Donuts & Bakery usually hires two type of workers which are Full time

workers and part time workers. Full time workers are the workers who work for more than

164 hours per month. They are the permanent workers and they have their own timetable

acording to their shift. Full time workers are being paid on monthly wages which is calculated

by direct wages hour. It is easier for the company to pay the full time workers’ wages every

month by calculating the accumulated working hours rather than paying them every time they

finish their job.

On the other hand, part time workers are the workers who work less than 164 hours

per month. They are not permanent and they usually work only for one to four months. Nash

Donuts & Bakery usually hires part time workers when they need to produce more donuts and

breads than the usual amount of production. It usually happens during the seasonal celebration

such as during Christmas, Chinese New Year and Hari Raya celebrations. Part time workers

are paid based on the time tickets which record the amount of hours that they work on a

specific job. Since they are not permanent, the company will pay them every time they finish

their specific job by calculating the amount of hours that they spent to finish the job.

In short, we can see that Nash Donuts & Bakery apply the activity cost drivers which

are machine-hour and direct labor-hour to calculate their overhead cost. For the labor cost, the

company paid both full time and part time workers using different methods respectively.

SUGGESTION AND RECOMMENDATION

Since Nash Donuts & Bakery used direct wages hour and time tickets to determine

their labor cost, we would like to suggest them to determine the salary of their workers

based on the amount of output produced. Which means, the workers’ wages are

determined by how much the output produced by them. The more they produce, the higher the

wages that they will get. So, the workers will be motivated to produce more output in order to

get a higher wages which resulted in the high productivity of the workers.

Currently, Nash Donuts & Bakery already opened five branches in which all of the

five branches are located at the north Peninsular Malaysia. We would like to suggest that

Nash Donuts & Bakery should open their branches all over the Malaysia, not only

focusing their market at the north Peninsular Malaysia. We are pretty sure that Nash

Donuts & Bakery will be a great success if they started to market their products all over the

Malaysia since their donuts and breads are delicious and are sold at a lower price; which can

be bought by everyone regardless of their level of income.

Nash Donuts & Bakery work really hard to ensure that they allocate their cost

accurately by using all of those costing methods stated above. This kind of situation is really

good for them as a growing small company in this competitive market. We believe that Nash

Donuts & Bakery will survive for a very long time and will continue growing and be a leading

company in Muslim food industries if they keep up with their current pace and improve

the company’s management little by little until its best in the future.