Kingsport Containers Company makes a single product that is subject to wide seas
ID: 2510168 • Letter: K
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 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:
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.
Quarter First Second Third Fourth Direct materials $ 320,000 $ 160,000 $ 80,000 $ 240,000 Direct labor 80,000 40,000 20,000 60,000 Manufacturing overhead 220,000 196,000 184,000 ? Total manufacturing costs (a) $ 620,000 $ 396,000 $ 284,000 $ ? Number of units to be produced (b) 160,000 80,000 40,000 120,000 Estimated unit product cost (a) ÷ (b) $ 3.88 $ 4.95 $ 7.10 $ ?Explanation / Answer
Answer 1
Answer 2
Unit Product Cost for 4th Quarter:
Answer 3
Since the buinsess of Kingsport Containers Company is subject to wide seasonal variation in demand, there is huge fluctuation in units produced every quarter.
Further, the company incurs sizeable amount of Fixed Cost, that is apportioned equally among each quarter.
The combination of the above two factors lead to fluctuation in estimated unit product cost from one quarter to other.
As far as variable cost is concerned (Direct Material and Direct Labour), there is no change in the per unit cost in all the four quarters.
Answer 4
Quarter First Second Third Fourth Units Produced 1,60,000 80,000 40,000 1,20,000 Total Mfg. Overhead 2,20,000 1,96,000 1,84,000 2,08,000 Variable Mfg. Overhead 48,000 24,000 12,000 36,000 Fixed Mfg. Overhead 1,72,000 1,72,000 1,72,000 1,72,000Related Questions
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