High Low Method Accounting Need Help
| Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: |
|
Quarter |
|
|
|
First |
Second |
Third |
Fourth |
| Direct materials |
$ |
200,000 |
$ |
100,000 |
$ |
50,000 |
$ |
150,000 |
| Direct labor |
|
80,000 |
|
40,000 |
|
20,000 |
|
60,000 |
| Manufacturing overhead |
|
230,000 |
|
206,000 |
|
194,000 |
|
? |
|
|
|
|
|
|
|
|
|
| Total manufacturing costs (a) |
$ |
510,000 |
$ |
346,000 |
$ |
264,000 |
$ |
? |
|
|
|
|
|
|
|
|
|
| Number of units to be produced (b) |
|
80,000 |
|
40,000 |
|
20,000 |
|
60,000 |
| Estimated unit product cost (a ÷ b) |
$ |
6.38 |
$ |
8.65 |
$ |
13.20 |
$ |
? |
|
| Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. |
| Required: |
| 1-a. |
Using the high-low method, estimate the fixed manufacturing overhead cost per quarter and the variable manufacturing overhead cost per unit. (Round the "Variable manufacturing overhead per unit" to 2 decimal places.)
I am really confused , I know variable cost = change in activity/ change in cost but I don't know where to go from here, and do I need to find the question marks? Also, how do I do that? Also I know Fixed = Total - Variable Cost |
