Compute the unit product costs for the two products

Reference no: EM131896396

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.

Reference no: EM131896396

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