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 proc 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) Quarter First Second $ 140,000 $ 280,000 160,000 220,000 80,000 196,000 $ 660,000 $ 416,000 60,000 $ 6.93 120,000 $ 5.50 Third $ 70,000 40,000 184,000 $ 294,000 30,000 $9.80 Fourth $ 210,000 120,000 ? $7 90,000 $7 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 $0.40, 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 c 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 rat 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 proc 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) Quarter First Second $ 140,000 $ 280,000 160,000 220,000 80,000 196,000 $ 660,000 $ 416,000 60,000 $ 6.93 120,000 $ 5.50 Third $ 70,000 40,000 184,000 $ 294,000 30,000 $9.80 Fourth $ 210,000 120,000 ? $7 90,000 $7 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 $0.40, 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 c 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 rat 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 produ
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)
Quarter
First
$ 280,000
160,000
220,000
Second
$ 140,000
80,000
196,000
$ 660,000 $ 416,000
120,000
$ 5.50
60,000
$ 6.93
Third
$ 70,000
40,000
184,000
$ 294,000
30,000
$9.80
Fourth
$ 210,000
120,000
?
$?
90,000
$?
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 $0.40, 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 cos
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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