Chapter 2, Problem 11E

Varying Plantwide Predetermined Overhead Rates
Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-ordercosting system and computes pIantwide predeterminedoverhead rates on a quarterly basis using the number of units to be produced as theallocation base. Its estimated costs, by quarter, for the coming year are given below:

Management finds the variation in quarterly unit product costs to be confusing and difficult to work with.It has been suggested that theproblem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked tofind 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 $2.00, 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 thefourth quarter?
3. 1iat is causing the estimated unit product cost to fluctuate from one quarter to the next?
4. How would you recommend stabilizing the company’s unit product cost? Support your answer with computations.