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 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 120,000 60,000 30,000 90,000
Manufacturing overhead 220,000 196,000 184,000 ?
Total manufacturing costs (a) $ 660,000 $ 416,000 $ 294,000 $ ?
Number of units to be produced (b) 160,000 80,000 40,000 120,000
Estimated unit product cost (a ÷ b) $ 4.13 $ 5.20 $ 7.35 $ ?
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-a. Using the high-low method, estimate the fixed manufacturing overhead cost per quarter and the variable manufacturing overhead cost per unit. (Round the "Variable manufacturing overhead per unit" to 2 decimal places.)
1-b. Compute the total manufacturing cost and unit product cost for the fourth quarter. (Round the "Unit product cost" to 2 decimal places.)
3. Estimate the total manufacturing overhead cost for the year and an annual predetermined overhead rate. (Round the "Predetermined overhead rate" to 2 decimal places.)