Pine Products Company uses a job-order cost system. For a number of months there has been an ongoing rift between the sales department and the production department concerning a special-order product, TC-1. TC-1 is a seasonal product that is manufactured in batches of 2,000 units. It is sold at cost plus a markup of 30%.

The sales department is unhappy because fluctuating unit production costs significantly affect selling prices. Sales personnel complain that this has caused excessive customer complaints and the loss of considerable orders for TC-1.

The production department maintains that each job order must be fully costed on the basis of the costs incurred during the period in which the goods are produced. Production personnel maintain that the only real solution to the problem is for the sales department to increase sales in the slack periods.

Harita Sharma, president of the company, asks you as the company accountant to collect quarterly data for the past year on TC-1.

From the cost accounting system, you accumulate the following production quantity and cost data:

Instructions
(a) Determinewhatmanufacturingcostelementisresponsibleforthefluctuatingunitcosts.Why?
(b) Provide a recommended solution to the problem of fluctuating unit cost.
(c) Restate the quarterly data on the basis of your recommended solution.

Transcribed Image Text:

uarter Costs Direct materials Direct labour Manufacturing overhead Total Production in batches Unit cost (per batch) $100,000 60,000 105,000 $265,000 $220,000 132,000 153,000 $505,000 $80,000 48,000 97,000 $225,000 4 $200,000 120,000 125,000 $445,000 10 44,500 $53,000 45,909 56,250