Reference no: EM132636580

Activity-Based Costing:

Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data

                                                               H16Z            P25P

Direct materials per unit................ $10.20        $50.50

Direct labor per unit ...................... $8.40       $25.20

Direct labor-hours per unit ............ 0.40           1.20

Annual production......................... 30,000      10,000

The company's estimated total manufacturing overhead for the year is $1,464,480 and the company's estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures Estimated Overhead Cost

Supporting direct labor (DLHs)................. $ 552,000

Setting up machines (setups) ..................... 132,480

Parts administration (part types)................ 780,000

Total..........................................................$1,464,480

                                                   H16Z               P25P             Total

Supporting direct labor ...... 12,000               12,000      24,000

Setting up machines........... 864                   240         1,104

Parts administration ........... 600                   960        1,560

Required:

Question a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.

Question b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.