Exercise 3-7 Contrast ABC and Conventional Product Costs [LO3-2, LO3-3, LO3-4]

Kunkel Company makes two products and uses a conventional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:

	Mercon		Wurcon
Direct materials cost per unit	$	10.00	$	8.00
Direct labor cost per unit	$	3.00	$	3.75
Direct labor-hours per unit		0.20		0.25
Number of units produced		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 conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places.)

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 basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:

	Mercon	Wurcon	Total
Engineering design time (in hours)	4,000	4,000	8,000

Compute the unit product costs for the two products using the proposed ABC system