Evaluate the company''s unit product costs

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Reference no: EM1311239

Determine the unit of production  from the given data.

Javadi 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, labor, 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

$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 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.

Required:

Recomputed the company\'s unit product costs in accordance with your recommendations.

Reference no: EM1311239

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