Kunkel Company makes two products and uses a conventional costing system in whic
ID: 2332806 • Letter: K
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 9.00 $ 7.00 15.00 $ 17.00 4.80 4,000 8,000 0.40 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 $1,600,000. 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: Mercon Wurcon Total Engineering design time (in hours) 8,000 8,000 16,000 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 costExplanation / Answer
Solution 1 :
Total direct labour used in Mercon = 0.40 x 4,000 = 1,600 hours
Total direct labour used in Wurcon = 4.80 x 8,000 = 38,400 hours
Hence, total overhead of $1,600,000 will be allocated in 1,600 : 38,400
So, overhead for Mercon = $1,600,000 x 1,600 / 40,000
= $64,000
And overhead for Wurcon = $1,600,000 x 38,400/40,000 = $1,536,000
Overhead for Mercon per unit = $64,000/ 4,000 = $16
Overhead for Wurcon per unit = $1,536,000/8,000 = $192
Unit product cost of Mercon = $9 + $15 + $16 = $40
Unit product cost of Wurcon = $7 + $17 + $192 = $216
Solution 2 : In this case, half of $1,600,000 ( I.e. 800,000) will be allocated in 1,600 : 38,400 and half in 8,000 : 8,000 ( means equally)
Overhead for Mercon per unit = $432,000/ 4,000 = $108
Overhead for Wurcon per unit = $1,168,000/8,000 = $146
Unit product cost of Mercon = $9 + $15 + $108= $132
Unit product cost of Wurcon = $7 + $17 + $146 = $170
Mercon Wurcon Half in 1,600: 38,400 32,000 768,000 Half equally 400,000 400,000 Total manufacturing overhead 432,000 1,168,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.