Question

%) E4-27 (book/static) Capitola Manufacturing produces surfboards. The company uses a normal-costing system and allocates manufacturing overhead second quarters of the year. The company is in danger of losing one of its larger customers, Pacific Wholesale, due to large fluctu and third quarters. You have been provided the following budgeted information for the coming year: BE! Click the icon to view the budgeted information.) (Click the icon to view additional information.) Read the requirements. Requirement 1 and 2. Calculate the total manufacturing cost per unit for the second and third quarter assuming the company alla quarter and an annual budgeted manufacturing overhead rate. First identify the formula to calculate the total manufacturing cost per unit, then enter the appropriate amounts to calculate the tota each quarter and an annual budgeted manufacturing overhead rate for the year. (Abbreviation used: OH = overhead, mat.'= mater Total per ur Qtr 2 Qtr 3 Annual

example given

Answer 1

1. To calculate the total manufacturing cost per unit for second and third quarter assuming the company allocates manufacturing overhead costs based on budgeted manufacturing overhead rate need to calculate budgeted fixed manufacturing overhead per unit per quarter because all other costs are given per unit basis.

		Quarter 1	Quarter 2	Quarter 3	Quarter 4	Annual
Surfboards manufactured and sold		500	400	100	250	1250
Direct manufacturing labor hours to make each board	2
Direct manufacturing labor hours		1000	800	200	500	2500
Fixed manufacturing overhead cost		20000	20000	20000	20000	80000
Direct manufacturing labor hours		1000	800	200	500	2500
Budgeted fixed manufacturing overhead		20	25	100	40	32
Budgeted costs based on quarterly manufacturing overhead rate		Quarter 2	Quarter 3
Direct material cost		26000	6500
($65*400;100)
Direct manufacturing labor costs		16000	4000
($20*800;200)
Variable manufacturing overhead costs		12800	3200
($16*800;200)
Fixed manufacturing overhead costs		20000	20000
(25*800;100*200)
Total manufacturing cost		74800	33700
Divided by boards manufactured by quarter		400	100
Manufacturing cost per board		187	337

2. To calculate the total manufacturing cost per unit for second and third quarter assuming the company allocates manufacturing overhead costs based on an annual budgeted manufacturing overhead rate.

We have calculated annual fixed manufacturing overhead cost which is $32.

Budgeted costs based on quarterly manufacturing overhead rate		Quarter 2	Quarter 3
Direct material cost		26000	6500
($65*400;100)
Direct manufacturing labor costs		16000	4000
($20*800;200)
Variable manufacturing overhead costs		12800	3200
($16*800;200)
Fixed manufacturing overhead costs		25600	6400
(32*800;200)
Total manufacturing cost		80400	20100
Divided by boards manufactured by quarter		400	100
Manufacturing cost per board		201	201

3.

Capitola manufaturing prices its surfboards at manufacturing costs plus 20%		Quarter 2	Quarter 3
Prices based on quarterly budgeted manufacturing		224.4	404.4
overhead rates calculated in requirement 1
(187*120%;337*120%)
Prices based on annual budgeted manufacturing		241.2	241.2
overhead rates calculated in requirement 2
(201*120%)

Pacific wholesale is seeing large fluctuation in the prices of boards because Capitola manufacturing is determining its budgeted manufacturing overhead rates for boards on a quarterly basis rather than on annual basis. Capitola should use annual budgeted manufacturing overhead rate because it is better to take decision based on longer annual periods rather than shorter quarterly periods. The main reason for the annual budgeted manufacturing overhead rate is the quantity of boards fluctuating on quarterly basis is very high.

Capitola should vary prices based on its quarterly fluctuation in production. It can vary prices based on market condition for demand too. In this case, it can charge higher prices in 1^st and 2^nd quarter, when the demand is high.