Chapter 3, Problem 3.11E

1.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

To compute: The estimated total fixed manufacturing overhead cost per quarter.

Answer to Problem 3.11E

Fixed manufacturing overhead per quarter is $140,000.

Explanation of Solution

Manufacturing overhead in first quarter is $300,000.

Variable manufacturing overhead per unit is $2.00

Number of units to be produced in first quarter is 80000 units

  $\begin{array}{l}Fixedmanufacturingoverheadperquarter=Manufacturingoverhead-Variablemanufacturingoverhead\\ =\$300,000-(80,000\times \$2.00)\\ =\$300,000-\$160,000\\ \$140,000\end{array}$

Fixed manufacturing overhead per quarter is $140,000.

2.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

To calculate: The estimated unit product cost for fourth quarter.

Answer to Problem 3.11E

The estimate unit product cost for the fourth quarter is 8.93

Explanation of Solution

  $\begin{array}{l}manufacturingoverhead=Fixedoverheadforthequarter-Variableoverheadforthequarter\\ =\$140,000-(60,000\times \$2.00)\\ =\$140,000-\$120,000\\ \$260,000\end{array}$

The manufacturing overhead in the fourth quarter is $260,000.

The estimate unit product cost for the fourth quarter:

	Particular	Amount ($)
A	Direct material	180000
B	Direct labor	96000
C	Manufacturing overhead	260000
D = $A+B+C$	Total manufacturing cost	536000
E	Number of units to be purchased	60000
F $=\frac{D}{E}$	Estimated unit product cost	8.93

The estimate unit product cost for the fourth quarter is 8.93

3.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

The reason for the fluctuation in estimated unit product cost from one quarter to the next.

Answer to Problem 3.11E

The unit of production is decreased and increase in unit product cost is increasing.

Explanation of Solution

There is increase in the unit product cost though there is decrease in the level of production. This increase is because fixed overhead is same for all the quarters whereas the number of units to be produced has decreased in second and third the quarters while again increased in fourth quarter but it is also less than the first quarter. This result in increase in unit product cost as this level of product is decreasing whereas fixed overhead is constant due to which it is allocated to fewer units.

4.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

The recommendation for stabilization in the company’s unit product cost with the help of computation.

Answer to Problem 3.11E

Predetermined rate should be used by the company for stabilizing the unit products cost

Explanation of Solution

Predetermined rate should be used by the company for stabilizing the unit products cost. It is the overhead rate which is used to allocated total manufacturing overhead to jobs.

Predetermine overhead rate:

  $Predetermineoverheadrate=\frac{Estimatedtotalmanufacturingoverhead\cos t}{EstimatedTotalamountoftheallocationbase}$

Fixed manufacturing overhead for the year:

  $\begin{array}{l}Fixedmanufacturingoverehead=\$140,000\times 4\\ =\$560,000\end{array}$

Calculation of variable manufacturing overhead:

  $\begin{array}{l}Totalunit=80,000+40,000+20,000+60,000\\ =200,000\end{array}$

  $\begin{array}{l}Total\mathrm{var}iablemanufacturingoverheads=200,000\times \$2\\ =\$400,000.\end{array}$

  $\begin{array}{l}Totalmanufacturingoverheads+\mathrm{var}iablemanufacturingoverheads\\ =\$560,000+\$400,000\\ =\$960,000\end{array}$

Predetermined overhead rate:

  $\begin{array}{l}Predetermineoverheadrate=\frac{Estimatedtotalmanufacturingoverhead\cos t}{EstimatedTotalamountoftheallocationbase}\\ =\frac{\$960,000}{\$200,000}\\ =\$4.80pereunit\end{array}$

	Particular	First quarter ($)	Second quarter ($)	Third quarter ($)	Fourth quarter ($)
A	Direct material	240000	120000	60000	180000
B	Direct labor	128000	64000	32000	96000
C	Manufacturing overhead	384000	192000	96000	288000
D = $A+B+C$	Total manufacturing cost	752000	376000	188000	564000
E	Number of units to be purchased	80000	40000	20000	60000
F $=\frac{D}{E}$	Estimated unit product cost	9.40	9.40	9.4	9.40