Javadi Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated cost, by quarter, for the coming year are given below. QUARTER First Second Third Fourth Direct materials $240,000 $120,000 $60,000 $180,000 Direct labor 96,000 48,000 24,000 72,000 Manufacturing overhead 228,000 204,000 192,000 ? Total manufacturing costs (a) $564,000 $372,000 $276,000 ? Number of units to be produced (b) 80,000 40,000 20,000 60,000 Estimated units product cost (a) + (b) $7.05 $9.30 $13.80 2 Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, Immanuel has been asked to find a more appropriate way of assigning manufacturing overhead costs to units of product. Using the high-low method, estimate the fixed manufacturing overhead cost per quarter and the variable manufacturing overhead cost per unit.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Javadi Company makes a single product that is subject to wide seasonal variations in demand. The company uses a
QUARTER
First Second Third Fourth
Direct materials $240,000 $120,000 $60,000 $180,000
Direct labor 96,000 48,000 24,000 72,000
Manufacturing overhead 228,000 204,000 192,000 ?
Total
Number of units to be produced (b) 80,000 40,000 20,000 60,000
Estimated units product cost (a) + (b) $7.05 $9.30 $13.80 2
Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, Immanuel has been asked to find a more appropriate way of assigning manufacturing overhead costs to units of product.
Using the high-low method, estimate the fixed manufacturing overhead cost per quarter and the variable manufacturing overhead cost per unit.
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