11-10A

11-2 Exercise 11-10A Smoothed unit cost Stoneham Manufacturing estimated its product costs and volume of production for Year 3 by quarter as follows. Direct raw materials Direct labor Manufacturing overhead Total production costs Expected units produced First Quarter $ 96,000 57,600 48,000 $201,600 16,000 Second Quarter $ 48,000 28,800 100,800 $177,600 8,000 Third Quarter $144,000 86,400 172,800 $403,200 24,000 Fourth Quarter $ 72,000 43,200 86,400 $201,600 12,000 Stoneham Company sells a souvenir item at various resorts across the country. Its management uses the product's estimated quarterly cost to determine the selling price of its product. The company expects a large variance in demand for the product between quarters due to its seasonal nature. The company does not expect overhead costs, which are predominately fixed, to vary significantly as to production volume or with amounts for previous years. Prices are established by using a cost-plus pricing strategy. The company finds variations in short-term unit cost confusing to use. Unit cost variations complicate pricing decisions and many other decisions for which cost is a consideration. Required Round computations to two decimal points. a. Based on estimated total production cost, determine the expected quarterly cost per unit for Stone- ham's product. b. How could overhead costs be estimated each quarter to solve the company's unit cost problem? Calculate the unit cost per quarter based on your recommendation