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

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 $2.00, 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. is causing the estimated unit product cost to fluctuate from one quarter to the next? 4. How would you recommend stabilizing the company’s unit product cost? Support your answer with computations. Transcribed Image Text: Quarter
First
Second
Third
Fourth
Direct materials …
$240,000 $120,000
$ 60,000
$180,000
Direct labor
128,000
64,000
32,000
96,000
Manufacturing overhead
300,000
220,000
180,000
?
Total manufacturing costs (a)
$668,000 $404,000
$272,000 $
?
Number of units to be produced (b)
Estimated unit product cost (a) ÷ (b)
80,000
40,000
20,000
60,000
… ..
$8.35
$10.10
$13.60
?
……