Reference no: EM132501051

Jacarda Company makes a composting bin that is subject to wide seasonal variations in demand. Unit product costs are computed on a quarterly basis by dividing each quarter's manufacturing costs (materials, labour, and overhead) by the quarter's production in units.

The company's estimated costs, by quarter, for the coming year are given below:

Quarter

                                          First                  Second                  Third                             Fourth

Direct Materials                    $386,400             $193,200             $96,600                  $289,800

Direct Labour                       193,200                   96,600             48,300                    144,900

Manufacturing Overhead           262,300               234,600               220,800                   248,400

Total manufacturing costs          $841,800               $524,400                $365,700             $683,100

# of units to be produced            92,000                 46,000                        23,000             69,000

Estimated unit product cost              $9.15               $11.40                      $15.90                  $9.90

• Management finds the variation in unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. After some analysis, you have determined that the company's overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production.

Question 1: Calculate the predetermined overhead rate based on units and direct labour.

Question 2: Compute the company's unit product costs in accordance with your recommendations in (1) above.