Jacarda Company makes a composting bin that is subject to wide seasonal variations in demand. Unit...

Transcribed Image Text:

Jacarda Company makes a composting bin that is subject to wide seasonal variations in demand. Unit product costs are computed on a quarterly basis by dividing each quarter's manufacturing costs (materials, labour, and overhead) by the quarter's production in units. The company's estimated costs, by quarter, for the coming year are given below: Quarter First Second Direct materials Direct labour Manufacturing $ 802,400 401,200 536,900 $401,200 Third $200,600 200,600 489,700 100,300 466,100 Fourth $ 601,800 300,900 513,300 overhead Total manufacturing $1,740,500 $1,091,500 $ 767,000 $1,416,000 costs Number of units to be 118,000 59,000 29,500 88,500 produced Estimated unit product cost 14.75 $ 18.50 $ 26.00 $ 16.00 Management finds the variation in unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. After some analysis, you have determined that the company's overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production. Jacarda Company makes a composting bin that is subject to wide seasonal variations in demand. Unit product costs are computed on a quarterly basis by dividing each quarter's manufacturing costs (materials, labour, and overhead) by the quarter's production in units. The company's estimated costs, by quarter, for the coming year are given below: Quarter First Second Direct materials Direct labour Manufacturing $ 802,400 401,200 536,900 $401,200 Third $200,600 200,600 489,700 100,300 466,100 Fourth $ 601,800 300,900 513,300 overhead Total manufacturing $1,740,500 $1,091,500 $ 767,000 $1,416,000 costs Number of units to be 118,000 59,000 29,500 88,500 produced Estimated unit product cost 14.75 $ 18.50 $ 26.00 $ 16.00 Management finds the variation in unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. After some analysis, you have determined that the company's overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production.