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Q1) Javadi Company produces a composting bin which is subject to wide seasonal variations in demand. Unit product costs are find outd on quarterly basis by dividing each quarter's manufacturing costs (materials, labor, and overhead) by quarter's production in units. Company's estimated costs, by quarter, for coming year are listed below:

  Quarter
  First Second Third Fourth
Direct materials $240,000 $120,000 $60,000 $180,000
Direct labor 96,000 48,000 24,000 72,000
Manufacturing overhead 228,000 204,000 192,000 216,000
Total manufacturing costs $564,000 $372,000 $276,000 $468,000
Number of units to be produced 80,000 40,000 20,000 60,000
Estimated unit product cost $7.05 $9.30 $13.80 $7.80

Management determines variation in unit product costs to be confusing and difficult to work with. It has been suggested that problem lies with manufacturing overhead, as it is largest element of cost. Accordingly, you have been asked to determine a more suitable way of assigning manufacturing overhead cost to units of product. After some analysis, you have find out that company's overhead costs are mostly fixed and hence illustrate little sensitivity to changes in level of production.

problem:

Company uses job-order costing system. How would you suggest that manufacturing overhead cost be allocated  to production? Be specific, and show calculations.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918395

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