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||$||15.00||$||12.00|
|Direct labor cost per unit||$||5.00||$||7.00|
|Direct labor-hours per unit||0.50||6.25|
|Number of units produced||2,000||4,000|
These products are customized to some degree for specific customers.
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.
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)||2,000||2,000||4,000|
Compute the unit product costs for the two products using the proposed ABC system.
(For all requirements, do not round intermediate calculations. Round your final answers to 2 decimal places.)
|Direct Labour Hours||26000||(2000 X 0.5+4000 X 6.25)|
|Overhead Rate Per Hour||30||(780000/26000)|
|(30 X 0.5)||(30 X 6.25)|
|D=A+B+C||Unit Product Cost Under Conventional System||35.00||206.50|
|A||Overhead related to direct labor hour||15000||375000|
|(390000/26000) X 1000||(390000/26000) X 4000 X 6.25|
|B||Overhead related to engineer hour||195000||195000|
|Overhead cost per unit||105||143|
|Unit product cost under ABC costing||125.00||161.50|
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