Homework SourseExercise 211 Varying Plantwide Predetermined Overhead Rates
Exercise 2-11 Varying Plantwide Predetermined Overhead Rates [LO2-1, LO2-2, LO2-3]
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 $0.60, 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 | $ | 200,000 | $ | 100,000 | $ | 50,000 | $ | 150,000 | |||
| Direct labor | 80,000 | 40,000 | 20,000 | 60,000 | |||||||
| Manufacturing overhead | 240,000 | 216,000 | 204,000 | ? | |||||||
| Total manufacturing costs (a) | $ | 520,000 | $ | 356,000 | $ | 274,000 | $ | ? | |||
| Number of units to be produced (b) | 80,000 | 40,000 | 20,000 | 60,000 | |||||||
| Estimated unit product cost (a) ÷ (b) | $ | 6.50 | $ | 8.90 | $ | 13.70 | $ | ? | |||
Solution
Answer 1
Total Manufacturing cost = 240,000
variable cost element($0.60 per unit * 80000 units) = 48,000
Fixed cost element = 192,000
Answer:2
Estimated fixed manufacturing overhead = 192,000
Estimated variable manufacturing overhead$0.60 per unit × 60,000 units = 36,000
Estimated total manufacturing overhead cost = 228,000
Total manufacturing cost and unit product cost:
Answer:3
Answer:4 Calculation of predetermined overhead rate:
Predetermined overhead rate=Total manufacturing cost for the year/Total units
=888000/200000
=$4.44 per unit
| Direct materials | 150000 |
| Direct Labor | 60000 |
| Manufacturing Overhead | 228000 |
| Total manufacturing cost(a) | 438000 |
| Numbers of units to be produced(b) | 60000 |
| Estimated unit product cost (a)/(b) | 7.3 |
![Exercise 2-11 Varying Plantwide Predetermined Overhead Rates [LO2-1, LO2-2, LO2-3] Kingsport Containers Company makes a single product that is subject to wide s](/WebImages/10/exercise-211-varying-plantwide-predetermined-overhead-rates-1001620-1761516012-0.webp "Exercise 2-11 Varying Plantwide Predetermined Overhead Rates [LO2-1, LO2-2, LO2-3] Kingsport Containers Company makes a single product that is subject to wide s")
![Exercise 2-11 Varying Plantwide Predetermined Overhead Rates [LO2-1, LO2-2, LO2-3] Kingsport Containers Company makes a single product that is subject to wide s](/WebImages/10/exercise-211-varying-plantwide-predetermined-overhead-rates-1001620-1761516012-1.webp "Exercise 2-11 Varying Plantwide Predetermined Overhead Rates [LO2-1, LO2-2, LO2-3] Kingsport Containers Company makes a single product that is subject to wide s")
