Kingsport Containers Company uses job-order costing and computes quarterly predetermined overhead rates based on estimated production volumes. The company's estimated manufacturing costs vary significantly by quarter due to fluctuations in production volume. This causes the estimated unit product cost to fluctuate between quarters. To stabilize costs, the company is considering calculating one overhead rate for the entire year based on total estimated production.

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p Mai Connect Chapter 2 and 28 5 Exercise 2-11 Varying Plantwide Predetermined Overhead
Rates (L021, LO2-2, Lo2-3) Kingsport Containers Company makes a single product that is
subject to wide seasonal variations in demand. The company uses a 10 points 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 FirstSecond Thiedlli fourth $280,000 %140,000 $ 70,000 $210,000
,80 4,0 29,00068,8 Direct materials Direct labor Manufacturing overhead Total anufacturing
costs (a) Number of units to be produced (b) Estinated unit product cost () (b) 4.92 $43$ 9.47
References 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. Accor been asked to find dingly,
you have 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 40,
what must be the estimated total fxed Assuming the estimated variable manufacturing overhead
cost per unit is 2. Assuming the assumptions about cost behavior from the first three quarters
hold constant, what is the for the fourth quarter? 3. What is causing the estimated unt product
cost to fluctuate from one quarter to the next? 4 Assuming the company computes one
predetermined overhead rate for the year rather calculate the unit product cost for all units
produced during the year Complete this question by entering your answers in the tabs below
Solution
1. Calculation of extimated Total Fixed manufacturing overhead cost per quarter - First
Second Third Fourth Direct materials variable $280,000 $140,000 $70,000 $210,000 Direct
labor variable $80,000 $40,000 $20,000 $60,000 Manufacturing Overhead** variable $48,000
$24,000 $12,000 $36,000 Fixed $182,000 $182,000 $182,000 $182,000 Total Cost $590,000
$386,000 $284,000 $488,000 Output ( in Unit) 120,000 60,000 30,000
90,000 Total Cost per unit $4.92 $6.43 $9.47 $5.42 ** Manufacturing variable overhead =
0.40* Output units Manufacturing fixed cost = Total manufacturing cost - manufacturing
variable overhead 2. Given in above calculation Estimated unit product cost for the fourth
quarter = $ 5.42 3. Produced/Output units causing the estimated unit product cost to fluctuate
from one quarter to the next. 4. Overhead rate = Total overhead during the year / Total
estimated produced units =
(230000+206000+194000+218000)/(120000+60000+30000+90000)= $2.83 Total per unit
cost = per unit material cost + per unit labor cost + per unit manufacturing cost = 2.33 + 0.67+
2.83=$5.83