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:QuarterFirst Second Third FourthDirect materials $ 320,000 $ 160,000 $ 80,000 $ 240,000Direct labor 160,000 80,000 40,000 120,000Manufacturing overhead 230,000 206,000 194,000 ?Total manufacturing costs (a) $ 710,000 $ 446,000 $ 314,000 $ ?Number of units to be produced (b) 160,000 80,000 40,000 120,000Estimated unit product cost (a) ÷ (b) $ 4.44 $ 5.58 $ 7.85 $ ?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 $0.30, 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.

1. Assuming the estimated variable manufacturing overhead cost per unit is $0.30, 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.

Explanation:

Quarter                           First          Second        Third          Fourth

Direct materials       $320,000     $160,000   $80,000    $240,000

Direct labor                160,000         80,000      40,000       120,000

variable overhead       48,000         24,000      12,000         36,000

fixed overhead          182,000        182,000    182,000        182,000

Man. overhead          230,000      206,000     194,000       216,000

Total costs (a)           $710,000     $446,000    $314,000    $576,000

Number of units         160,000         80,000        40,000    120,000

to be produced (b)

Estimated unit                $4.44            $5.58          $7.85        $4.80

product cost (a) ÷ (b)

total fixed manufacturing overhead = $182,000 x 4 = $728,000 / total number of units produced = $728,000 / 400,000 units = $1.82 per unit

so now the total variable overhead costs = $0.30 + $1.82 = $2.12 per unit

total costs per quarter:

Quarter                           First          Second        Third          Fourth

Direct materials       $320,000     $160,000   $80,000    $240,000

Direct labor                160,000         80,000      40,000       120,000

variable overhead     339,200       169,600       84,800       254,400

Total costs (a)           $819,200     $409,600    $204,800   $614,400

Number of units         160,000         80,000        40,000    120,000

to be produced (b)

Estimated unit                $5.12            $5.12          $5.12        $5.12

product cost (a) ÷ (b)

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