Problem 2 Java Company manufactures a product that is subject to wide seasonal variations in demand. Unit costs are computed on a quarterly basis by dividing each quarter's manufacturing costs (materials, labor, and overhead) by the quarter's production in units. The company's estimated costs, by quarter, for the coming year are given below: Quarter Second Third Fourth P180,000 72,000 216,000 P468,000 First Direct materials Direct labor.. P240,000 96,000 228.000 P564,000 P120,000 48,000 204.000 P372.000 P 60,000 24,000 192.000 P276,000 Manufacturing overhead. Total manufacturing costs. Number of units to be produced Estimated cost per unit 80,000 P7.05 40,000 P9.30 20,000 P13.80 60,000 P7.80 Management finds the variation in unit costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find a more suitable way of assigning manufacturing overhead cost to un ts of product. After some analysis, you have determined changes in the le el of production. Required: 1. The company uses a job-order costing system. recommend that manufacturing overhead cost be assigned to production? Be specific, and show computations. 2. Recompute the company's unit costs in accordance with your recommendations in (1) above. How would you
Problem 2 Java Company manufactures a product that is subject to wide seasonal variations in demand. Unit costs are computed on a quarterly basis by dividing each quarter's manufacturing costs (materials, labor, and overhead) by the quarter's production in units. The company's estimated costs, by quarter, for the coming year are given below: Quarter Second Third Fourth P180,000 72,000 216,000 P468,000 First Direct materials Direct labor.. P240,000 96,000 228.000 P564,000 P120,000 48,000 204.000 P372.000 P 60,000 24,000 192.000 P276,000 Manufacturing overhead. Total manufacturing costs. Number of units to be produced Estimated cost per unit 80,000 P7.05 40,000 P9.30 20,000 P13.80 60,000 P7.80 Management finds the variation in unit costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find a more suitable way of assigning manufacturing overhead cost to un ts of product. After some analysis, you have determined changes in the le el of production. Required: 1. The company uses a job-order costing system. recommend that manufacturing overhead cost be assigned to production? Be specific, and show computations. 2. Recompute the company's unit costs in accordance with your recommendations in (1) above. How would you
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Problem 2
Java Company manufactures a product that is subject to wide seasonal
variations in demand. Unit costs are computed on a quarterly basis by dividing
each quarter's manufacturing costs (materials, labor, and overhead) by the
quarter's production in units. The company's estimated costs, by quarter, for
the coming year are given below:
Quarter
First
Second
Third
Fourth
Direct materials
Direct labor. ..
Manufacturing overhead. .
Total manufacturing costs....
P240,000 P120,000
96,000
228.000
P564,000
48,000
204.000
P372.000
P 60,000
24,000
192,000
P276,000
P180,000
72,000
216.000
P468,000
Number of units to be produced. .
Estimated cost per unit ...
80,000
P7.05
40,000
P9.30
20,000
P13.80
60,000
P7.80
Management finds the variation in unit costs to be confusing and difficult to
work with. It has been suggested that the problem lies with manufacturing
overhead, since it is the largest element of cost. Accordingly, you have been
asked to find a more suitable way of assigning manufacturing overhead cost to
un ts of product. After some analysis, you have determined changes in the
le el of production.
Required:
1. The company uses a job-order costing system. How would you
recommend that manufacturing overhead cost be assigned to production?
Be specific, and show computations.
2. Recompute the company's unit costs in accordance with your
recommendations in (1) above.
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