Chapter 2 Management finds the variation in quaterty unit product costs to be co

Question

Chapter 2 Management finds the variation in quaterty unit product costs to be confusing and difficult so work with. It has been suggested that the problem lies with manufactoring overhead because it is the largest element of total ananufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product Required 1. Assaming the estimated variable manufacturing overhead cost per unit is $2.00, what mast be the estimated total fixed manufacturing overhead cost per qaarter? 2. Assuming the assumptions about cost behavior from the first theee quarters hold constant what is the estimated unit prodact cost for the fourth quarter? 3. What is causing the estimated unit prodact cost to fluctuate from one qearter to the nexr? How would you recommend stabilizing the company's unit product cod? Support your anwer with computations EXERCISE 2-12 Computing Predetermined Overhead Retes and Job Costs LO2-1, L02-2, LO2-3 Moody Corporation uses a job-order costing sysiem with a plantwide predstermined overhead rate based on machine-hours. At the beginning of the year, the company made the follow ing estämates Machine-hours required to support estimeted peoduction Floxed manufacturing overhead cost Variable manufacturing overhead cost per machine-hour... 100.000 $650,000 $3.00 Required . Compute the plantwide predetermined overhead rate 2 During the ycar, Job 400 was starned and completed. The following information was available with respect to this job: Direct materials Direct labor cost Machine-hours used $450 $210 Compute the total manufacturing cost assigned to Job 400 3. If Job 400 inclades 52 units what is the unit peoduct cont for this job? 4. If Moody uses a markup percentage of 1 20% of its total manufacturing cost, then what selling price per unit would it have established for Job 400 5. If Moody hired you as a consultant to critique its pricing methodology, what would you say? EXERCISE 2-13 Departmental Predetermined Overhead Rates LO2-L L02-2, LO2-4 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 Departmend bases its rate on direct labor-hours At the beginning of the year, the company made the following estimates 6.000 30,000 Direct labor-hours Machine-hours Total fixed manufacturing overhead cost Variable manufacturing overhead per machine-hour..... Variable manufacturing overhead per direct labor-hour 5,000 $264,000 $366,000 $4.00 48,000 I. Compute the predetermined overhead rate for each department. 2 The job cost sheet for Job 203, which was started and completed daring the year, showed the following Cutting Finishing 80 20 $500 $310 $108 $360 Direct labor-hours Direct materials Direct labor cost

Explanation / Answer

Answer to Exercise 2-12.

Part 1.

Pre-determined Overhead Rate = Estimated Manufacturing Overhead / Estimated Machine Hours
Estimated Manufacturing Overhead = Fixed Manufacturing Overhead + Variable Manufacturing Overhead
Estimated Manufacturing Overhead = $650,000 + ($3.00* 100,000)
Estimated Manufacturing Overhead = $650,000 + $300,000
Estimated Manufacturing Overhead = $950,000

Plant Wide Pre-determined Overhead Rate = 950,000 / 100,000
Plant Wide Pre-determined Overhead Rate = $9.50 per MH

Part 2.

Total Cost = Direct Materials + Direct Labor + Manufacturing Overhead applied
Manufacturing Overhead applied = 40 * $9.50
Manufacturing Overhead applied = $380

Total Cost assigned = $450 + $210 + $380
Total Cost assigned = $1,040

Part 3.

Unit Product Cost for Job 400 = Total Cost assigned / Unit manufactured
Unit Product Cost for Job 400 = 1,040 / 52
Unit Product Cost for Job 400 = $20.00

Part 4.

Selling Price per Unit = Total Manufacturing Cost per Unit + Markup
Selling Price per Unit = $20.00 + ($20.00 * 120%)
Selling Price per Unit = $20.00 + $24.00
Selling Price per Unit = $44.00

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