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: Quarter First Second Third Fourth Direct materials $ 320,000 $ 160,000 $ 80,000 $ 240,000 Direct labor 80,000 40,000 20,000 60,000 Manufacturing overhead 230,000 206,000 194,000 ? Total manufacturing costs (a) $ 630,000 $ 406,000 $ 294,000 $ ? Number of units to be produced (b) 80,000 40,000 20,000 60,000 Estimated unit product cost (a) ÷ (b) $ 7.88 $ 10.15 $ 14.70 $ ? 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.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a
| Quarter | |||||||||||
| First | Second | Third | Fourth | ||||||||
| Direct materials | $ | 320,000 | $ | 160,000 | $ | 80,000 | $ | 240,000 | |||
| Direct labor | 80,000 | 40,000 | 20,000 | 60,000 | |||||||
| Manufacturing overhead | 230,000 | 206,000 | 194,000 | ? | |||||||
| Total |
$ | 630,000 | $ | 406,000 | $ | 294,000 | $ | ? | |||
| Number of units to be produced (b) | 80,000 | 40,000 | 20,000 | 60,000 | |||||||
| Estimated unit product cost (a) ÷ (b) | $ | 7.88 | $ | 10.15 | $ | 14.70 | $ | ? | |||
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.
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