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. Quarter Second $160,000 $ 80,000 $ 40,000 $120,000 First Third Fourth Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) + (b) 80,000 240,000 20,000 204,000 60,000 40,000 216,000 $480,000 $336,000 $264,000 $ 120,000 4.00 $ 90,000 60,000 5.60 $ 30,e00 8.80 S 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, 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 $0.40. 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. Quarter Second $160,000 $ 80,000 $ 40,000 $120,000 First Third Fourth Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) + (b) 80,000 240,000 20,000 204,000 60,000 40,000 216,000 $480,000 $336,000 $264,000 $ 120,000 4.00 $ 90,000 60,000 5.60 $ 30,e00 8.80 S 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, 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 $0.40. 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.
Chapter1: Financial Statements And Business Decisions
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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:
Quarter
Third
$160,000 $ 80,000 $ 40,000 $120,000
First
Second
Fourth
Direct materials
Direct labor
Manufacturing overhead
Total manufacturing costs (a)
Number of units to be produced (b)
Estimated unit product cost (a) + (b)
60,000
40,000
216,000
$480,000 $336,000 $264, 000 $
80,000
240,000
20,000
204,000
30, e00
8.80 S
90,000
120,000
4.00 $
60,000
5.60 $
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, 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 $0.40. 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 räte 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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