Kingsport Containers Company makes a single product with 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) Estimated unit product cost (a) ÷ (b) First $ 240,000 80,000 230,000 $ 550,000 80,000 $ 6.88 Quarter Second $ 120,000 40,000 206,000 $366,000 40,000 $9.15 Third $ 60,000 20,000 194,000 $ 274,000 20,000 $13.70 Fourth $ 180,000 60,000 ? $ ? 60,000 $? Management finds the variation in quarterly unit product costs to be confusing. Accordingly, you have been asked to find a more appropriate way of applying 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 with 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) Estimated unit product cost (a) ÷ (b) First $ 240,000 80,000 230,000 $ 550,000 80,000 $ 6.88 Quarter Second $ 120,000 40,000 206,000 $366,000 40,000 $9.15 Third $ 60,000 20,000 194,000 $ 274,000 20,000 $13.70 Fourth $ 180,000 60,000 ? $ ? 60,000 $? Management finds the variation in quarterly unit product costs to be confusing. Accordingly, you have been asked to find a more appropriate way of applying 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Kingsport Containers Company makes a single product with 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)
Estimated unit product cost (a) (b)
First
$ 240,000
80,000
230,000
$ 550,000
80,000
$6.88
Quarter
Second
$ 120,000
40,000
206,000
$366,000
40,000
$ 9.15
Third
$ 60,000
20,000
194,000
$274,000
20,000
$ 13.70
Fourth
$ 180,000
60,000
?
$ ?
60,000
$ ?
Management finds the variation in quarterly unit product costs to be confusing. Accordingly, you have been asked to find a more
appropriate way of applying 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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