Question

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	$	12.00	$	10.00
Direct labor cost per unit	$	6.00	$	8.00
Direct labor-hours per unit		1.20		4.90
Number of units produced		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 $440,000. 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 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. (Do not round intermediate calculation. Round your final answers to 2 decimal places.)

Answer 1

1) Budgeted direct labor hour = (1000*1.2+2000*4.9) = 11000 Hour

Overhead rate = 440000/11000 = 40 per hour

Calculate unit Cost

	Mercon	Wurcon
Direct material	12	10
Direct labor	6	8
Overhead	40*1.2 = 48	40*4.9 = 196
Unit Cost	66	214

2) Overhead rate :

Half = 220000/11000 = 20 per hour

Half = = 220000/4000 = 55 per hour

	Mercon	Wurcon
Direct material	12	10
Direct labor	6	8
Overhead (based on labor hour)	20*1.2 = 24	20*4.9 = 98
Overhead (based on design hour)	55*2 = 110	55*1 = 55
Total Unit Cost	152	171