Question

Spada 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, Socha Wholesale, due to large fluctuations in price. The owner of Spada 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 Direct labor per unit + Direct mat. per unit + Fixed OH per unit Var. OH per unit per unit Qtr 2 + + + Qtr 3 + + Annual + + + Requirement 3. Spada Manufacturing prices its surfboards at manufacturing cost plus 20%. Why might Socha Wholesale be seeing large fluctuations in the prices of boards? Which of the methods described in requirements 1 and 2 would you recommend Spada use? Explain. manufacturing overhead rate because capacity decisions are based on Prices vary based on Spada should use the budgeted quarterly fluctuations in production. Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Working notes: Total production for the year Direct labor hour per unit Total direct labor hours 1,800 1 1,800 Total fixed manufacturing OH Total direct labor hours Fixed Overhead rate per DL hour $54,000 $13,500*4 1,800 $30 Direct Labor Direct Mat Fixed OH + Total cost + 1 & 2 per unit per unit per unit per unit Qtr 2 + + + $20 $20 $20 + Variable OH per unit $13 $13 $13 $8 $8 $8 Qtr 3 Annual + $30 $30 $30 + $71 $71 $71 + + 3 Spada should use the budgeted fixed manufacturing overhead rate because capacity decisions are based on total available capacity Prices may vary based on quarterly fluctuations in production Please give drop down options to answer exactly