Jacarda Company manufactures a compost bin that is subject to wide seasonal variations in demand. Unit product
Question:
Jacarda Company manufactures a compost bin that is subject to wide seasonal variations in demand. Unit product costs are calculated quarterly by dividing each quarter's manufacturing costs (materials, labor, and overhead) by the quarter's output in units. The estimated costs of the company, by quarter, for the coming year are detailed below:
Room | ||||||||||||
First | Second | Third | Four | |||||||||
Direct materials | ps | 507,600 | ps | 253,800 | ps | 126,900 | ps | 380.700 | ||||
Direct labour | 253,800 | 126,900 | 63,450 | 190,350 | ||||||||
Manufacturing overhead | 338,400 | 310,200 | 296,100 | 324,300 | ||||||||
Total manufacturing costs | ps | 1,099,800 | ps | 690,900 | ps | 486,450 | ps | 895,350 | ||||
Number of units to produce | 94,000 | 47,000 | 23,500 | 70.500 | ||||||||
Estimated cost of the unit product | ps | 11.70 | ps | 14.70 | ps | 20.70 | ps | 12.70 | ||||
Management finds the variance in product unit costs confusing and difficult to manage. It has been suggested that the problem lies in manufacturing overhead, since it is the most important element of cost. Consequently, you have been asked to find a more appropriate way to allocate manufacturing overhead costs to units of product. After some analysis, you have determined that the company's overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production.
Required:
1. Calculate default overhead rate based on units and direct labor? (Round your answer "per unit" to 2 decimal places.)
2. Recalculate the company's unit costs of the product according to the rate per unit in (1) above. (Round your answers to 2 decimal places.)
Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb