Question

kunkel company makes two products and uses a conventional costing system

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 $ 8.00 $ 6.00 $ 10.00 $ 11.00 2.00 7.00 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 $640,000. 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 1,000 1,000 Total 2,000 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

Using the information given in the question, I have computed Unit product cost for each of the product under conventional costing system and Activity based costing.

1. Computation of unit product for each of the products using conventional costing system Predetermined overhead cost based on direct labour hours i Kunkel Company 2 Given information in the question 3 Mercon Wurcon 5 Direct materials cost per unit 6 6 Direct labor cost per unit 10 11 7 Direct labor hours per unit 8 Number of units produced 1000 2000 Manufacturing overhead cost 640000 Mercon Wurcon total 2 Direct labor hours per unit Number of units produced Total direct labor hours 3000 1000 2000 2000 14000 16000 10 11 12 Predetermined overhead cost: Manufacturing overhead cost Total direct labor hours 40 640000 16000 13 14 15 16 17 Particulars Mercon Wurcon Direct materials cost per unit 8 6 Direct labor cost per unit 10 11 Maufacturing overhead allocated 80 280 based on direct labor hours (2hrs*40) (7hrs*40) 19 20 21 Unit product cost 98 297 22 23

2. Computation of unit product for each of the products using activity based costing Under ABC, half of the overhead would continue to allocate using direct labor hours and the other half using engineering design time Manufacturing overhead cost 640000 Number of units produced Particulars Direct materials cost Direct labor cost Maufacturing overhead allocated based on direct labor hours Engineering design time Direct labor hours Mercon Wurcon total predetermined overhead rate 20 (320000/16000) 1000 2000 Mercon Wurcon 8000 12000 10000 22000 40000 280000 (2hrs*20) (7hrs*20) 160000 160000 (1000hrs 160) (1000hrs*160) 218000 474000 218 237 (218000/1000 (474000/2000 units) units) 320000 16000 1.overhead cost based on direct labor cost 2000 14000 (2hrs*1000) (Thrs*2000) Total Cost Unit product cost (Total cost/Number of units produced) Engineering design time(hours) Mercon Wurcon total predetermined overhead rate 160 (320000/2000) 320000 1000 1000 2000 2.overhead cost based on engineering design time Note: Predetermined overhead rate: Manufacturing overhead cost Direct labor hrs/ engineering design time In first used direct labor hours as allocation base and in second engineering design time is used as allocation base.