Question

Kunkel Company makes two products and uses a conventional costing system. A single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow: Mercon WurconDirect materials cost per unit $ 8.00 $ 6.00Direct labor cost per unit $10.00 $11.00Direct labor-hours per unit 2.00 7.00Number of units produced 1,000 2,000These 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.)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 haif 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) 1,000 1,000 2,000Compute the unit product cost for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places.

Answer 1

Answer:

1) using conventional costing

unit cost mercon = $98

unit cost wurcon = $297

2) using ABC costing

unit cost mercon = $218

unit cost wurcon = $237

Explanation:

                                                     Mercon           Wurcon

Direct materials cost per unit       $8.00             $6.00

Direct labor cost per unit            $10.00             $11.00

Direct labor-hours per unit            2.00                7.00

overhead rate applied                     $80              $280      

Number of units produced           1,000              2,000

overhead rate = total overhead / total direct labor hours = $640,000 / 16,000 = $40

unit cost mercon = $8 + $10 + $80 = $98

unit cost wurcon = $6 + $11 + $280 = $297

using the ABC costing, overhead rate is only 50%

Mercon           Wurcon

Direct materials cost per unit       $8.00             $6.00

Direct labor cost per unit            $10.00             $11.00

Direct labor-hours per unit            2.00                7.00

overhead rate applies                     $40              $140      

Number of units produced           1,000              2,000

total engineering costs          $160,000        $160,000

engineering cost per unit              $160                $80

engineering cost per unit = $320,000 / 2,000 = $160

unit cost mercon = $8 + $10 + $40 + $160 = $218

unit cost wurcon = $6 + $11 + $140 + $80 = $237