Part E: Activity-Based Costing

Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data:

	H16Z	P25P
Direct materials per unit ................	$10.20	$50.50
Direct labor per unit ......................	$8.40	$25.20
Direct labor-hours per unit ............	0.40	1.20
Annual production .........................	30,000	10,000

The companys estimated total manufacturing overhead for the year is $1,464,480 and the companys estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures		Estimated Overhead Cost
Supporting direct labor (DLHs) .................			$ 552,000
Setting up machines (setups)	.....................		132,480
Parts administration (part types) ................				780,000
Total ...........................................................			$1,464,480
	H16Z	P25P	Total
Supporting direct labor ......	12,000	12,000	24,000
Setting up machines ...........	864	240	1,104
Parts administration ...........	600	960	1,560

Required:

1. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.

2. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.