6. What action, if any, do you recommend as a result of the above analyses? EXERCISE 8-20 (Appendix 8B) Activity-Based Costing Product Costs for External Reports [107] Kunkel Company makes two products and uses a traditional costing system in which a single plant- wide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow: Direct materials cost per unit ...... Direct labor cost per unit ... Direct labor-hours per unit ........ Number of units produced ............ Mercon Wurcon $10.00 $8.00 $3.00 $3.75 0.20 0.25 10,000 40,000 These products are customized to some degree for specific customers. Required: 1. The company's manufacturing overhead costs for the year are expected to be $336,000. Using the company's traditional costing system, compute the unit product costs for the two products. 2. Management is considering an activity-based costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the ba sis of engineering design time. The Mercon product is expected to need 4,000 engineering design hours and the Wurcon product is also expected to need 4,000 engineering design hours. Compute the unit product costs for the two products using the proposed ABC system. 3. Explain why the unit product costs differ between the two systems. EXERCISE 8-21 Calculating and Interpreting Activity-Based Costing Data [LO3, L04] Sven's Cookhouse is a popular restaurant located on Lake Union in Seattle. The owner of the restau- rant has been trying to better understand costs at the restaurant and has hired a student inter to con- duct an activity-based costing study. The intem, in consultation with the owner, identified three major Activity-Based Costing: A Tool to Aid Decision Making Resource consumption is distributed across the activities as follows: 361 Wages... Cleaning supplies .. . Cleaning equipment depreciation ... Vehicle expenses.. Office expenses President's compensation .. Distribution of Resource Consumption Across Activity Cost Pools Cleaning Travel Job Carpets to Jobs Support Other 75% 15% 0% 10% 100% 0% 0% 0% 70% 0% 0% 30% 0% 80% 20% 0% 0% 60% 40% 0% 0% 30% 70% Total 100% 100% 100% 100% 100% 100% 0% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on. Required: 1. Using Exhibit 8-5 as a guide, prepare the first stage allocation of costs to the activity cost pools. Using Exhibit 8-6 as a guide, compute the activity rates for the activity cost pools. 3. The company recently completed a 6 hundred square-foot carpet-cleaning job at the Lazy Bee 'Rancha 52-mile round-trip journey from the company's offices in Eagle-Vail. Compute the cost of this job using the activity-based costing system. 4. The revenue from the Lazy Bee Ranch was $137.70 (6 hundred square feet at $22.95 per hun dred square feet). Using Exhibit 8-11 as a guide, prepare a report showing the margin from this job. S. What do you conclude concerning the profitability of the Lazy Bee Ranch job? Explain. 6. What advice would you give the president concerning pricing jobs in the future