Question

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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: Direct materials cost per unit Direct labor cost per unit Direct labor-hours per unit Number of units produced Mercon Wurcon $ 14.00 $ 11.00 $ 10.00 $ 13.00 1.00 12.50 1.000 2.000 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 $780,000. 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.) Mercon Wurcon Unit product cost 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: Engineering design time (in hours) Mercon Wurcon 4,000 4,000 Total 8,000 Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places.) Mercon Wurcon Unit product cost

Answer 1

1.
Total Direct Labor hours = 1000 x 1 + 2000 x 12.50 = 26000
Overhead rate = $780000/26000 = $30 per labor hour

	Mercon	Wurcon
Direct Material cost per unit	$                      14	$                      11
Direct Labor cost per unit	$                      10	$                      13
Overhead cost per unit	$                      30	$                    375
Product Cost per unit	$                      54	$                    399

2.

Activity Cost Pool	Overhead Cost	Activity Cost Driver		Activity Rate
Engineering Design	$           3,90,000	26000	Labor hours	$                     15.00	per labor hour
Other	$           3,90,000	8000	Design time	$                     48.75	per design hour
Total Overhead Cost	$          7,80,000
	Mercon	Wurcon
Overhead Allocation
Engineering Design	$           1,95,000	$           1,95,000
Other	$              15,000	$           3,75,000
Total Overhead Cost	$          2,10,000	$           5,70,000
Units	1000	2000
Overhead cost per unit	$              210.00	$              285.00
Direct Material cost per unit	$                14.00	$                11.00
Direct Labor cost per unit	$                10.00	$                13.00
Product Cost per unit	$              234.00	$              309.00