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: Direct materials cost per unit Direct labor cost per unit Direct labor-hours per unit Number of units produced Mercon Wurcon $ 10.00 $ 8.00 $ 4.00 $ 5.00 0.20 3.90 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. (Do not round intermediate calculation. Round your final answers to 2 decimal places.) Mercon Wurcon Unit product cost 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) Mercon 4,000 Wurcon 4,000 Total 8,000 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.) Mercon Wurcon Unit product cost Mercon Marcon Unit product cost

Answer 1

1) Overhead cost per hour = 1200000/40000 = 30 per hour

Calculate unit product cost

	Mercon	Wurcon
Direct material	10	8
Direct labor	4	5
Overhead	30*.20 = 6	30*3.9 = 117
Unit product cost	20	130

2) Overhead cost per direct labor hour = 600000/40000 = 15 per hour

Overhead cost per engine hour = 600000/8000 = 75 per

	Mercon	Wurcon
Overhead on Direct labor hour	15000	585000
Overhead on engine hour	300000	300000
Total overhead	315000	885000
Unit	5000	10000
Overhead cost per unit	63	88.50
Direct material	10	8
Direct labor	4	5
Unit product cost	77	101.50