Based on estimated total production cost, determine the expected quarterly cost

Question

Based on estimated total production cost, determine the expected quarterly cost per unit for Stoneham’s product. (Round your answers to 2 decimal places.)

Calculate the predetermined overhead rate. (Round your answer to 2 decimal places.)

Calculate the unit cost per quarter based on the predetermined overhead rate. (Round your intermediate calculations and final answers to 2 decimal places.)

Stoneham Manufacturing estimated its product costs and volume of production for 2019 by quarter as follows Second Third First Quarter $ 96,000 Fourth Quarter Quarter Quarter Direct raw materials Direct labor Manufacturing overhead Total production costs Expected units produced 48,000 $144,000 72,000 28,800 57,600 86,400 43,200 48,000 _100,800 172,80086,400 $201,600 $177,600 $403,200 $201,600 16,000 8,000 24,000 12,000 Stoneham Company sells a souvenir item at various resorts across the country. Its management uses the product's estimated quarterly cost to determine the selling price of its product. The company expects a large variance in demand for the product between quarters due to its seasonal nature. The company does not expect overhead costs, which are predominately fixed, to vary significantly as to production volume or with amounts for previous years. Prices are established by using a cost-plus pricing strategy. The company finds variations in short-term unit cost confusing to use. Unit cost variations complicate pricing decisions and many other decisions for which cost is a consideration Required a. Based on estimated total production cost, determine the expected quarterly cost per unit for Stoneham's product. b-1. Calculate the predetermined overhead rate b-2. Calculate the unit cost per quarter based on the predetermined overhead rate

Explanation / Answer

Solution a:

Solution b-1:

Total Manufacturing Overhead = $48,000+$100,800+$172,800+$86,400= $408,000

Total units Produced = 16000+8000+24000+12000 = 60,000 units

Predetermined Overhead rate = Total Overhead / Total units = $408,000/ 60,000 = $6.80

Solution b-2:

Direct raw material per unit in each quarter = Total Direct material of quarter/ Units produced for quater = $96000 / 16000 = $6 per unit

Direct Labor per unit = Total Labour cost of quarter / units produced = $57600/ 16000 = $3.6 per unit.

Per unit Direct material and direct labor cost will be same in each quarter.

Predetermined overhead rate = $6.80 per unit

Therefore Unit cost per quarter based on predetermined overhead rate = Direct material per unit +Direct labor per unit+ Predetermined overhead rate = $6 +$3.6 + $ 6.80 = $16.40

Expected Quarterly Cost per unit based on estimated Total production costs Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Production costs $201,600.00 $177,600.00 $403,200.00 $201,600.00 Expected units Produced 16000 8000 24000 12000 Expected Cost per unit $12.60 $22.20 $16.80 $16.80

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