Question
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
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 | $ 200,000 | $ 100,000 | $ 50,000 | $ 150,000 |
Direct labor | 120,000 | 60,000 | 30,000 | 90,000 |
Manufacturing overhead | 230,000 | 206,000 | 194,000 | ? |
Total manufacturing costs (a) | $ 550,000 | $ 366,000 | $ 274,000 | $ ? |
Number of units to be produced (b) | 120,000 | 60,000 | 30,000 | 90,000 |
Estimated unit product cost (a) (b) | $ 4.58 | $ 6.10 | $ 9.13 | $ ? |
Management finds the variation in quarterly unit product costs to be confusing. 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.
White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates:
Department | ||
---|---|---|
Cutting | Finishing | |
Direct labor-hours | 8,400 | 63,000 |
Machine-hours | 66,500 | 3,100 |
Total fixed manufacturing overhead cost | $ 400,000 | $ 554,000 |
Variable manufacturing overhead per machine-hour | $ 3.00 | |
Variable manufacturing overhead per direct labor-hour | $ 4.75 |
Required:
1. Compute the predetermined overhead rate for each department.
2. The job cost sheet for Job 203, which was started and completed during the year, showed the following:
Department | ||
---|---|---|
Cutting | Finishing | |
Direct labor-hours | 6 | 13 |
Machine-hours | 84 | 5 |
Direct materials | $ 790 | $ 390 |
Direct labor cost | $ 138 | $ 299 |
Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.
3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?
Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty woods. The company uses a job-order costing system. The capacity of the plant is determined by the capacity of its constraint, which is time on the automated bandsaw that makes finely beveled cuts in wood according to the preprogrammed specifications of each cabinet. The bandsaw can operate up to 184 hours per month. The estimated total manufacturing overhead cost at capacity is $14,904 per month. The company bases its predetermined overhead rate on capacity, so its predetermined overhead rate is $81 per hour of bandsaw use.
The results of a recent months operations appear below:
Sales | $ 43,770 |
---|---|
Beginning inventories | $ 0 |
Ending inventories | $ 0 |
Direct materials | $ 5,360 |
Direct labor | $ 8,830 |
Manufacturing overhead incurred | $ 14,260 |
Selling and administrative expense | $ 8,210 |
Actual hours of bandsaw use | 154 |
Required:
1-a. Prepare an income statement for the month. Your income statement should include the cost of unused capacity as a period expense.
1-b. What was the cost of unused capacity during the month?
1APrepare an income statement for the month. Your income statement should include the cost of unused capacity as a period expense.
1B What was the cost of unused capacity during the month?
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