Question
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.
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$13.00$11.00
Direct labor cost per unit$14.00$15.00
Direct labor hours per unit0.907.05
Number of units produced2,0004,000
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 $900,000. 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:
MerconWurconTotal
Engineering design time (in hours) $4,000$4,0008,000
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.)
1.What is the unit product cost under conventional system for Mercon and Wurcon?
2.What is the unit product cost under ABC system for Mercon and Wurcon?
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