Kingsport Containers Company makes a single product that is subject to 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. Quarter Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) + (b) First $ 240,000 160,000 220,000 $ 620,000 80,000 $ 7.75 Second $ 120,000 80,000 196,000 $ 396,000 40,000 $9.90 Third $ 60,000 40,000 184,000 $ 284,000 20,000 $ 14.20 Fourth $ 180,000 120,000 $? 60,000 $? Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find 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 $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.
Kingsport Containers Company makes a single product that is subject to 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. Quarter Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) + (b) First $ 240,000 160,000 220,000 $ 620,000 80,000 $ 7.75 Second $ 120,000 80,000 196,000 $ 396,000 40,000 $9.90 Third $ 60,000 40,000 184,000 $ 284,000 20,000 $ 14.20 Fourth $ 180,000 120,000 $? 60,000 $? Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find 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 $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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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:Kingsport Containers Company makes a single product that is subject to 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.
Quarter
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
160,000
220,000
$ 620,000
80,000
$ 7.75
Complete this question by entering your answers in the tabs below.
Second
$ 120,000
80,000
196,000
$ 396,000
40,000
$9.90
Third
$ 60,000
40,000
184,000
$ 284,000
20,000
$ 14.20
Fourth
$ 180,000
120,000
?
$?
60,000
$?
Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with
manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find 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 $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.
Required 1 Required 2 Required 3 Required 4
Assuming the estimated variable manufacturing overhead cost per unit is $0.60, what must be the estimated total fixed
manufacturing overhead cost per quarter?
Fixed manufacturing overhead cost
Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product
cost for the fourth quarter? (Do not round intermediate calculations and round the "Unit product cost" to 2 decimal places.)
Unit product cost
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.
Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
Unit product cost
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