Question & Answer: Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company…..

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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: uarter Second Third Fourth $200,000 $100,000 $. 50,000 $150,000 First Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) ÷ (b) 120,000 60,000 30,000 90,000 240,000 216,000 204,000 $560,000 $376,000 $284,000 160,000 80,000 40,000 120,000 $ 3.50 $ 4.70 $ 7.10 $ 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? Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates i calculate the unit product cost for all units produced during the year

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. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates i calculate the unit product cost for all units produced during the year.

Expert Answer

 

Answer 1.

Variable Manufacturing Overhead per unit = $0.30

First Quarter:

Manufacturing Overhead = $240,000
Number of units produced = 160,000

Manufacturing Overhead = Variable Manufacturing Overhead per unit * Number of units produced + Fixed Manufacturing Overhead
$240,000 = $0.30 * 160,000 + Fixed Manufacturing Overhead
$240,000 = $48,000 + Fixed Manufacturing Overhead
Fixed Manufacturing Overhead = $192,000

So, Fixed Manufacturing Overhead per quarter is $192,000

Answer 2.

Quarter 4:

Number of units produced = 120,000
Fixed Manufacturing Overhead = $192,000
Variable Manufacturing Overhead per unit = $0.30

Manufacturing Overhead = $192,000 + 120,000*$0.30
Manufacturing Overhead = $228,000

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