Javadi Company makes a single product that is subject to wide seasonal variation

Question

Javadi Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes 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 80,000 40,000 20,000 60,000 Manufacturing overhead 240,000 216,000 204,000 ? Total manufacturing costs (a) 480,000 $ 336,000 264,000 $ ? Number of units to be produced (b) 160,000 80,000 40,000 120,000 Estimated unit product cost (a

Explanation / Answer

variable manufacturing overhead = (240000-204000)/(160000-40000) = 0.3/unit fixed = 240000 - 160000*0.3 = 192000 b) total manufacturing overhead for fourth quarter = 192000 + 0.3*120000 = 232000 total manufacturing cost = 120000+60000+232000 = 412000 unit production cost = 412000/120000 = 3.43

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