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 | $ | 10.00 | $ | 7.00 | ||
Direct labor cost per unit | $ | 10.00 | $ | 11.00 | ||
Direct labor-hours per unit | 0.30 | 2.25 | ||||
Number of units produced | 5,000 | 10,000 | ||||
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 $720,000. 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) | 2,000 | 2,000 | 4,000 | ||||||
Compute the unit product costs for the two products using the proposed ABC system.
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