Kingsport Containers Company manufactures a single product that is subject to wide seasonal variations in demand. The
Question:
Kingsport Containers Company manufactures a single product that is subject to wide seasonal variations in demand. The company uses a job-costing system and calculates predetermined plant-wide overhead rates quarterly using the number of units to be produced as the allocation base. Your estimated costs, by quarter, for the coming year are listed below:
Room | |||||||||||
First | Second | Third | Four | ||||||||
Direct materials | ps | 200,000 | ps | 100,000 | ps | 50,000 | ps | 150.000 | |||
Direct labour | 80.000 | 40.000 | 20,000 | 60.000 | |||||||
Manufacturing overhead | 240.000 | 216,000 | 204,000 | ? | |||||||
Total manufacturing costs (a) | ps | 520.000 | ps | 356,000 | ps | 274.000 | ps | ? | |||
Number of units to produce (b) | 80.000 | 40.000 | 20,000 | 60.000 | |||||||
Estimated cost of unit product (a) ÷ (b) | ps | 6.50 | ps | 8.90 | ps | 13.70 | ps | ? | |||
Management finds the variance in quarterly unit product costs confusing and difficult to manage. It has been suggested that manufacturing overhead is the problem because it is the largest element of total manufacturing cost. Consequently, you have been asked to find a more appropriate way to allocate manufacturing overhead costs to units of product.
Required:
1. Assuming the estimated variable manufacturing overhead cost per unit is $0.60, what should be the estimated total fixed manufacturing overhead cost per quarter?
2. Assuming that the assumptions about the behavior of the costs of the first three quarters remain constant, what is the estimated unit cost of the product for the fourth quarter?
3. What causes the estimated unit cost of the product to fluctuate from quarter to quarter?
4. Assuming that the company calculates a predetermined overhead rate for the year instead of calculating quarterly overhead rates, calculate the unit cost of the product for all units produced during the year.
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer