Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand....
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Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a Job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Quarter First $ 240,000 80,000 230,000 $ 550,000 Second $ 120,000 40,000 206,000 $ 366,000 80,000 $ 6.88 40,000 $ 9.15 Third $ 60,000 20,000 194,000 $ 274,000 20,000 $ 13.70 Fourth $ 180,000 60,000 $ ? 60,000 $ ? Estimated unit product cost (a) + (b) Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. Required: 1. Assuming the estimated variable manufacturing overhead cost per unit is $0.60, what must be the estimated total fixed manufacturing overhead cost per quarter? 2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? 3. What is causing the estimated unit product cost to fluctuate from one quarter to the next? 4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year. Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a Job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Quarter First $ 240,000 80,000 230,000 $ 550,000 Second $ 120,000 40,000 206,000 $ 366,000 80,000 $ 6.88 40,000 $ 9.15 Third $ 60,000 20,000 194,000 $ 274,000 20,000 $ 13.70 Fourth $ 180,000 60,000 $ ? 60,000 $ ? Estimated unit product cost (a) + (b) Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. Required: 1. Assuming the estimated variable manufacturing overhead cost per unit is $0.60, what must be the estimated total fixed manufacturing overhead cost per quarter? 2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? 3. What is causing the estimated unit product cost to fluctuate from one quarter to the next? 4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year.
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1 To find the estimated total fixed manufacturing overhead cost per quarter we can use the total manufacturing costs for each quarter and subtract the ... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
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