Problem
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
|
8.00
|
|
Direct labor cost per unit
|
4.00
|
5.00
|
|
Direct labor-hours per unit
|
0.20
|
3.90
|
|
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 $1,200,000. 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)
|
4,000
|
4,000
|
8,000
|
Compute the unit product costs for the two products using the proposed ABC system.