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    Du Page Products Company: What manufacturing cost element is responsible for the fluctuating unit costs? Why? What is your recommended solution to the problem of fluctuating unit costs?

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    BYP2.1 Du Page Products Company uses a job order cost system. For a number of months
    there has been an ongoing rift between the sales department and the production
    department concerning a special.order product, TC.1. TC.1 is a seasonal product
    that is manufactured in batches of 1,000 units. TC.1 is sold at cost plus a markup
    of 40% of cost.
    The sales department is unhappy because fluctuating unit production costs
    significantly affect selling prices. Sales personnel complain that this has caused
    excessive customer complaints and the loss of considerable orders for TC.1.
    The production department maintains that each job order must be fully costed on
    the basis of the costs incurred during the period in which the goods are produced.
    Production personnel maintain that the only real solution to the problem is for the
    sales department to increase sales in the slack periods.
    Sandra Devona, president of the company, asks you as the company accountant
    to collect quarterly data for the past year on TC.1. From the cost accounting system,
    you accumulate the following production quantity and cost data.

    Quarter
    Costs 1 2 3 4
    Direct materials $100,000 $220,000 $80,000 $200,000
    Direct labor 60,000 132,000 48,000 120,000
    Manufacturing 105,000 123,000 97,000 125,000
    overhead
    Total 265,000 475,000 225,000 445,000 225,000

    Production in 5 11 4 10
    batches
    (per
    batch)

    Unit cost (per $53,000 $43,182 $56,250 $44,500
    batch)

    Instructions
    With the class divided into groups, answer the following questions.
    a. What manufacturing cost element is responsible for the fluctuating unit costs?
    Why?
    b. What is your recommended solution to the problem of fluctuating unit costs?
    c. Restate the quarterly data on the basis of your recommended solution.

    The problem is located in Chapter 2.

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    https://brainmass.com/business/discounted-cash-flows-model/41067

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    Solution Preview

    Hi,

    This problem is simply about how you allocate overhead costs to the batches. It appears that ...

    Solution Summary

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