Concept explainers
Varying Plantwide Predetermined Overhead Rates
Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-ordercosting system and computes pIantwide predeterminedoverhead rates on a quarterly basis using the number of units to be produced as theallocation 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 theproblem lies with manufacturing overhead because it is the largest element of total
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 thefourth quarter?
3. 1iat 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.
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EBK INTRODUCTION TO MANAGERIAL ACCOUNTI
- Kingsport Containers Company makes a single product with 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 produ as the allocation base. Its estimated costs, by quarter, for the coming year are given below: Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) + (b) Quarter First $ 280,000 160,000 220,000 Second $ 140,000 80,000 196,000 $ 660,000 $ 416,000 120,000 $ 5.50 60,000 $ 6.93 Third $ 70,000 40,000 184,000 $ 294,000 30,000 $9.80 Fourth $ 210,000 120,000 ? $? 90,000 $? Management finds the variation in quarterly unit product costs to be confusing. Accordingly, you have been asked to find a more appropriate way of applying manufacturing overhead cost to units of product. Required: 1. Assuming the estimated variable manufacturing overhead cost per unit…arrow_forwardKingsport Containers Company makes a single product with 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: Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) (b) First $ 240,000 80,000 230,000 $ 550,000 80,000 $6.88 Quarter Second $ 120,000 40,000 206,000 $366,000 40,000 $ 9.15 Third $ 60,000 20,000 194,000 $274,000 20,000 $ 13.70 Fourth $ 180,000 60,000 ? $ ? 60,000 $ ? Management finds the variation in quarterly unit product costs to be confusing. Accordingly, you have been asked to find a more appropriate way of applying manufacturing overhead cost to units of product. Required: 1. Assuming the estimated variable manufacturing overhead cost per unit is…arrow_forwardThe management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The Corporation's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated activity for the upcoming year is 59,400 machine-hours. Capacity is 78,400 machine-hours. All of the manufacturing overhead is fixed and is $3,136,000 per year within the range of 59,400 to 78,400 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 59,900 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Multiple Choice $26.177 $766,177 $740,000 $26,397arrow_forward
- wrong answer. from 1 to 4. Kingsport Containers Companymakes a single product with wide seasonal variations indemand. The company uses a job - order costing system andcomputes plantwide predetermined overhead rates on aquarterly basis using the number of units to be produced asthe allocation base. Its estimated costs, by quarter, for thecoming year are given below: Management finds thevariation in quarterly unit product costs to be confusing.Accordingly, you have been asked to find a more appropriateway of applying manufacturing overhead cost to units ofproduct. Required: Assuming the estimated variablemanufacturing overhead cost per unit is $0.40, what must bethe estimated total fixed manufacturing overhead cost perquarter? Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? What is causing the estimated unit product cost to fluctuate from one quarter to the next? Assuming the company…arrow_forwardThe management of Krach Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 23,000 machine-hours. Capacity is 27,000 machine-hours and the actual level of activity for the year is assumed to be 13,500 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $78,300 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity. It is further assumed that this is also the actual amount of manufacturing overhead for the year. If the company bases its predetermined overhead rate on capacity,…arrow_forwardThe management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The Corporation's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated activity for the upcoming year is 69,000 machine-hours. Capacity is 85,000 machine-hours. AlIl of the manufacturing overhead is fixed and is $4,105,500 per year within the range of 69,000 to 85,000 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 69,700 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Multiple Choice $772,800 $780,640 $738,990 $41,650arrow_forward
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