3) What is causing the estimated unit product cost to fluctuate from one quarter

Question

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. (Do not round the intermediate calculations and round the "Unit product cost" to 2 decimal places.)

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.radio button unchecked1 of 4 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.radio button unchecked2 of 4 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.radio button unchecked3 of 4 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. 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 Fourth $160,000 80,000 40,000 $120,000 First Second Third Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) (b) $ 3.44 $4.58 160,000 80,000 40,000 120,000 230,000 206,000 194,000 $550,000 $366,000 $274,000 $ 160,000 80,000 40,000 120,000 6.85 $ 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 $0.30, 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 1 Required 2 Required 3 Required 4 Assuming the estimated variable manufacturing overhead cost per unit is $0.30, what must be the estimated total fixed manufacturing overhead cost per quarter?

Explanation / Answer

1. Fixed manufacturing overhead cost per quarter: $182,000

2. Estimated unit product cost for the fourth quarter: $3.82

3. Answer: Option 1. 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.

4. Unit product cost for all units produced during the year: $4.12

Quarter First Manufacturing overhead 230000 Less: Variable manufacturing overhead cost 48000 (160000 x $0.30) Fixed manufacturing overhead cost per quarter 182000

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