Spade Manufacturing produces surfboards. The company uses a normal-costing system and allocates manufacturing overhead on the basis of direct manufacturing labor-hours. Most of the company's production and sales occur 

in the first and second quarters of the year. The company is in danger of losing one of its larger customers, Solar Wholesale, due to large fluctuations in price. The owner of Spade has requested an analysis of the manufacturing 

cost per unit in the second and third quarters. You have been provided the following budgeted information for the coming year:

 

Read the requirements3.

Requirement 1 and 2. Calculate the total manufacturing cost per unit for the second and third quarter assuming the company allocates manufacturing overhead costs based on the budgeted manufacturing overhead rate 

determined for each quarter and an annual budgeted manufacturing overhead rate.

 

First, identify the formula to calculate the total manufacturing cost per unit, then enter the appropriate amounts to calculate the total cost per unit for the second and third quarters based on the budgeted manufacturing 

overhead rate determined for each quarter and an annual budgeted manufacturing overhead rate for the year. (Abbreviation used: OH = overhead, mat. = materials, and Var. = variable.)

 

Total cost

(1)

+

(2)

+

(3)

+

(4)

=

per unit

Qtr 2

+

+

+

=

Qtr 3

+

+

+

=

Annual

+

+

+

=

Requirement 3.

Spade

Manufacturing prices its surfboards at manufacturing cost plus20%. Why might

Solar

Wholesale be seeing large fluctuations in the prices ofboards? Which of the methods described in requirements 1 and 2 would you recommend

Does Spade

use? Explain.

Spade

should use the budgeted

(5)

manufacturing overhead rate because capacity decisions are based on

(6)

Prices

(7)

vary based on quarterly fluctuations in production.

1: Data Table

Quarter

1

2

3

4

Surfboards manufactured and sold

1020

500

250

230

2: More Info

It takes

1

direct manufacturing

labor-hour

to make each board. The actual direct material cost is

$7.00

per board. The actual direct manufacturing labor rate is

$21

per hour. The budgeted variable manufacturing overhead rate is

$14

per direct manufacturinglabor-hour. Budgeted fixed manufacturing overhead costs are

$10,000

each quarter.

3: Requirements

1.

Calculate the total manufacturing cost per unit for the second and third quarter assuming the company allocates manufacturing overhead costs based on the budgeted manufacturing overhead rate determined for each quarter.

2.

Calculate the total manufacturing cost per unit for the second and third quarters assuming the company allocates manufacturing overhead costs based on an annual budgeted manufacturing overhead rate.

3.

Spade

Manufacturing prices its surfboards at manufacturing cost plus20%. Why might

Solar

Wholesale be seeing large fluctuations in the prices of boards? Which of the methods described in requirements 1 and 2 would you recommend Does Spadeuse? Explain.