Question
Exercise 4-7 Contrast ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4] Kunkel Company makes two products and uses a conventional costing system in which a
Exercise 4-7 Contrast ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4]
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 | $ | 9.00 |
| $ | 7.00 |
|
Direct labor cost per unit | $ | 15.00 |
| $ | 17.00 |
|
Direct labor-hours per unit |
| 0.40 |
|
| 4.80 |
|
Number of units produced |
| 4,000 |
|
| 8,000 |
|
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 $1,600,000. Using the company's conventional 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 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) |
| 8,000 |
|
| 8,000 |
|
| 16,000 |
|
Compute the unit product costs for the two products using the proposed ABC system.
(For all requirements, do not round intermediate calculations. Round your final answers to 2 decimal places.)
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