Question

Please explain how you get your answer.

Splunge Manufacturing produces surfboards. The company uses a normal-costing system and allocates manufacturing overhead on the basis of direct manufacturing labor-hours. Most of the company's production and sales occur in the first and second quarters of the year. The company is in danger of losing one of its larger customers, Sod Wholesale, due to large fluctuations in price. The owner of Splunge has requested an analysis of the manufacturing cost per unit in the second and third quarters. You have been provided the following budgeted information for the coming year (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 allocates manufacturing overhead costs based on the budgeted manufacturing overhead rate determined for each 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 total cost per unit for second and third quarter based on the budgeted manufacturing overhead rate determined for each quarter and an annual budgeted manufacturing overhead rate for the year. (Abbreviation used: OH = overhead, mat = materials, and Var. = variable.) Total cost 7 + + per unit Qtr 2 + + + Qtr 3 + + + Annual + + Requirement 3. Splunge Manufacturing prices its surfboards at manufacturing cost plus 20%. Why might Sod Wholesale be seeing large fluctuations in the prices of boards? Which of the methods described in requirements 1 and 2 would you recommend Splunge use? Explain. Splunge should use the budgeted V manufacturing overhead rate because capacity decisions are based on Prices vary based on quarterly fluctuations in production.

Answer 1

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