Answer:
1. Assuming the estimated variable manufacturing overhead cost per unit is $0.40, 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?
- The total number of units produced varies a lot, ranging from 120,000 units during the first quarter to only 30,000 units in the third quarter. Since most manufacturing overhead costs are fixed, total costs during the quarters with a low level of production will be too high.
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.
Explanation:
Quarter First Second Third Fourth
Direct materials $200,000 $100,000 $50,000 $150,000
Direct labor 120,000 60,000 30,000 90,000
variable overhead 48,000 24,000 12,000 36,000
fixed overhead 172,000 172,000 172,000 172,000
Man. overhead 220,000 196,000 184,000 208,000
Total costs (a) $540,000 $356,000 $264,000 $448,000
Number of units 120,000 60,000 30,000 90,000
to be produced (b)
Estimated unit $4.50 $5.93 $8.80 $4.98
product cost (a) ÷ (b)
total fixed manufacturing overhead = $172,000 x 4 = $688,000 / total number of units produced = $688,000 / 300,000 units = $2.29333 per unit
so now the total variable overhead costs = $0.40 + $2.29333 = $2.69333 per unit
total costs per quarter:
Quarter First Second Third Fourth
Direct materials $200,000 $100,000 $50,000 $150,000
Direct labor 120,000 60,000 30,000 90,000
variable overhead 323,200 161,600 80,800 242,400
Total costs (a) $643,200 $321,600 $160,800 $482,400
Number of units 120,000 60,000 30,000 90,000
to be produced (b)
Estimated unit $5.36 $5.36 $5.36 $5.36
product cost (a) ÷ (b)
