Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:
Exercise 3-11 (Algo) Varying Plantwide Predetermined Overhead Rates (LO3-1, LO3-2, LO3-3] Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: Quarter First Second Third Fourth Direct materials $160,000 $ 80,000 $ 40,000 $120,000 Direct labor 120,000 60,000 30,000 90,000 Manufacturing 230,000 206,000 194,000 ? overhead Total manufacturing $510,000 $346,000 $264,000 $ ? costs (a) Number of units to 120,000 60,000 30,000 90,000 be produced (b) Estimated unit product cost (a) = $ 4.25 $ 5.77 $ 8.80 $ ? (b) Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. Required: 1. Assuming the estimated variable manufacturing overhead cost per unit is $0.40, what must be the estimated total fixed manufacturing overhead cost per quarter? 2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? 3. What is causing the estimated unit product cost to fluctuate from one quarter to the next? 4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year. Complete this question by entering your answers in the tabs below. Required Required Required Required 1 2 3 4 Assuming the estimated variable manufacturing overhead cost per unit is $0.40, what must be the estimated total fixed manufacturing overhead cost per quarter? Fixed manufacturing overhead cost Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required Required Required Required 1 2. 3 4 Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? (Do not round the intermediate calculations and round the "Unit product cost" to 2 decimal places.) Show less A Unit product cost Required Required Required Required 2 3 1 4 What is causing the estimated unit product cost to fluctuate from one quarter to the next? The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the fixed overhead is spread over fewer units. The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost decreases as the level of production decreases because the fixed overhead is spread over fewer units. The variable portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the variable overhead is spread over fewer units. The variable portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost decreases as the level of production decreases because the variable overhead is spread over fewer units. Required Required Required Required 1 2 3 4 Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year. (Do not round the intermediate calculations and round the "Unit product cost" to 2 decimal places.) Show less Unit product cost
