Question

Kunkel Company makes two products and uses a conventional costing system in which a single plantwide...

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 $ 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.

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.

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) 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.)

Homework Answers

Answer #1
I
Direct Labour Hours 26000 (2000 X 0.5+4000 X 6.25)
Overhead Rate Per Hour 30 (780000/26000)
Mercon Wurcon
A Direct Material 15 12
B Direct Labour 5 7
C Overhead 15 187.5
(30 X 0.5) (30 X 6.25)
D=A+B+C Unit Product Cost Under Conventional System 35.00 206.50
II
Mercon Wurcon
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
(390000/2) (390000/2)
C=A+B Total Overhead 210000 570000
Unit 2000 4000
Overhead cost per unit 105 143
Direct material 15 12
Direct labor 5 7
Unit product cost under ABC costing 125.00 161.50
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