Kenta Manufacturing Company produced 800 units of inventory in January 2018. The company Expects to produce an additional 7,200 units of inventory during the remaining 11 months of the year, for a total estimated production of 8,000 units in 2018. Direct materials and direct labor costs are $60 and $75 per unit, respectively. Kenta expects to incur the following manufacturing overhead costs during the 2018 accounting period:
Indirect materials .................................. $ 6,000
Depreciation on equipment ....................... 24,000
Utilities cost ........................................ 11,000
Salaries of plant manager and staff .............. 96,000
Rental fee on manufacturing facilities .......... 23,000
Required
a. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units.
b. Determine the estimated cost of the 800 units of product made in January.
c. Is the cost computed in Requirement b actual or estimated? Could Kenta improve accuracy by waiting until December to determine the cost of products? Identify two reasons that a manager would want to know the cost of products in January. Discuss the relationship between accuracy and relevance as it pertains to this problem.