Question
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
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:
QuarterFirstSecondThirdFourthDirect materials$802,400$401,200$200,600$601,800Direct labour401,200200,600100,300300,900Manufacturing overhead536,900489,700466,100513,300Total manufacturing costs$1,740,500$1,091,500$767,000$1,416,000Number of units to be produced118,00059,00029,50088,500Estimated 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.
Required:1.Calculate the predetermined overhead rate based on units and direct labour?(Round your "per unit" answer to 2 decimal places.)
2.Recompute the company's unit product costs in accordance with your recommendations in (1) above.(Round your answers to 2 decimal places.)
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