Kunkel Company makes two products and uses a conventional costing system in whic
ID: 2332807 • 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 12.00 $ 10.00 $ 6.00 $ 8.00 4.90 1,000 2,000 1.20 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 S440,000. 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) 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.) Mercon Wurcon Unit product costExplanation / Answer
Solution:
Answer 1).
The unit product costs for the two products:
Predetermined overhead rate
(440000 / 11000)
40
per direct labour hours
Answer 2).
The unit product costs for the two products using the proposed ABC system
Working notes:
Predetermined overhead rate:
440000 / 2 = 220000
220000 / 11000 = 20 per direct labour hours
Engineering design = 220000 / 4000 = 55
Mercon = 2000 / 1000 = 2
55 * 2 = 110
Wurcon = 2000 / 2000 = 1
55 * 1 = 55
Particulars Mercon Wurcon Number of units produced 1000 2000 Direct labour hours per unit 1.2 4.9 Total direct labour hours 1200 9800 11000 Total manufacturing overhead 440000 Total direct labour hours 11000Predetermined overhead rate
(440000 / 11000)
40
per direct labour hours
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