Kingsport Containers Company makes a single product that issubject to wide seasonal variations in demand. The company uses ajob-order costing system and computes plantwide predeterminedoverhead rates on a quarterly basis using the number of units to beproduced as the allocation base. Its estimated costs, by quarter,for the coming year are given below:
| Quarter |
| | First | | Second | | Third | | Fourth |
| Directmaterials | $ | 200,000 | | $ | 100,000 | | $ | 50,000 | | $ | 150,000 |
| Direct labor | | 80,000 | | | 40,000 | | | 20,000 | | | 60,000 |
| Manufacturing overhead | | 220,000 | | | 196,000 | | | 184,000 | | | ? |
| Total manufacturing costs(a) | $ | 500,000 | | $ | 336,000 | | $ | 254,000 | | $ | ? |
| Number of units to be produced(b) | | 120,000 | | | 60,000 | | | 30,000 | | | 90,000 |
| Estimated unit product cost (a)÷ (b) | $ | 4.17 | | $ | 5.60 | | $ | 8.47 | | $ | ? |
|
Management finds the variation in quarterly unit product coststo be confusing and difficult to work with. It has been suggestedthat the problem lies with manufacturing overhead because it is thelargest element of total manufacturing cost. Accordingly, you havebeen asked to find a more appropriate way of assigningmanufacturing overhead cost to units of product.
Required:
1. Assuming the estimated variable manufacturing overhead costper unit is $0.40, what must be the estimated total fixedmanufacturing overhead cost per quarter? Answer: $172,000
2. Assuming the assumptions about cost behavior from the firstthree quarters hold constant, what is the estimated unit productcost for the fourth quarter? Answer: $4.64
3. What is causing the estimated unit product cost to fluctuatefrom one quarter to the next? Answer:The fixed portion of htemanufacturing overhead cost is causing the unit porduct costs toflucuate.
4. Assuming the company computes one predetermined overhead ratefor the year rather than computing quarterly overhead rates,calculate the unit product cost for all units produced during theyear. ***I need help on this one***
