Question

Manufacturing a seasonal product (Chappy) comes with its own set of headaches for the sales team and the production team. They're all good people, but they are at odds over this product that can only be produced in batches of 1000 items. The selling price of Chappy is set at a 40% markup over the cost determined by the job order costing system. The per-unit production cost of Chappy changes from one season to the next, which causes the selling price to change. The sales team constantly deals with many customer complaints due to the changing prices. Customers ultimately cancel orders, reducing repeat sales of Chappy, requiring the sales team to continually search for new customers just to maintain sales levels. The production team schedules and organizes plant resources on a quarterly basis. The production of Chappy from each quarter includes all costs from that quarter. The solution to the problem, per the production team, is to stabilize the sales level throughout the year, placing responsibility for fixing this problem on the sales team. 3 4 You are the Controller of the company. You gather the following data for Chappy. Quarter Costs 1 2 Direct Materials $100,000 $220,000 $80,000 Direct Labor 60,000 132,000 48,000 Manufacturing Overhead 105,000 153,000 97,000 ----Total $265,000 $505,000 $225,000 Batches produced 5 11 Unit cost per batch $53,000 $45,909 $56,250 $200,000 120,000 125,000 445,000 10 $44,500 4 1. Which manufacturing cost element is causing the unit cost to change? Why? 2. What is your recommended solution for the issue of changing unit cost? 3. Create a new table for all four quarters showing how you applied your solution.

Answer 1

D seasonal Ansuere Summarized the data and information given in the question, manufactusing product (chappy) comes with its con (1) Manufacturing overhead is causing the unit cost to change: - Direct materials and Drect laboo ase variable costs hence they are constant at per unit level. @ Manufactuting overhead should be applied based on annual absorption late in order to ensure there is uniformity in pooduct costing and product pricing. (3) Overhead cost Annual manufacturing overhead $C1,80,000 Total batches overhead cost peo per batch: 30 batch $16,000

1 4 Quarter 2 3 Direct material $1,00,000 $229000 $80,000 $2,00,000 | Direct labor $60,000 $1,32,000 $ 48,000 $120,000 $1,60,000 manufacturing oveshead $89000 $1,76,000 $64,000 Total manufacturing cost $2,49000 $5,28,000 $1,92,000 $4,80,000 a Batches 4 Ib Unit cost per batch $48,000 $48,000 $48,000 $48,000 % %b b 5 11

manufacturing overhead: © Quastes 3 2 1 I 4 4 4 4 Il 10 5 Batches overhead cost $16,000 $16,000 $16,000$16,000 6 manufactuổing $89000 $1,76000 $64.000$logadom lovechead applied Iper batch *
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