Kunkel Company makes two products and uses a conventional costing system in whic
ID: 2339624 • 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: Wurcon $ 15.00 13.00 $ 6.00 9.00 3.05 4,000 Mercon Direct materials cost per unit Direct labor cost per unit Direct labor-hours per unit Number of units produced 0.40 2,000 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 $520,000. 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 4,000 Total 8,000 Wurcon Engineering design time (in hours) 4,000 Compute the unit product costs for the two products using the proposed ABC system (For all requirements, do not round intermediate calculations. Round your final answers to 2 decimal places.) Mercon Wurcon 1. Unit product cost under conventional system 2. Unit product cost under ABC systemExplanation / Answer
Answer
---Workings
Working
Mercon
Wurcon
A
DLH per unit
0.40
3.05
B
No. of units
2,000
4,000
C =A x B
Total no. of DLHs
800
12,200
A
Total Overheads
$ 520,000.00
B = 800 + 12200
Total no. of DLHs
13,000
C = A/B
Single Plantwide allocation rate
$ 40.00
---Working and Answer
Working
Mercon
Wurcon
A
Direct Material cost
$ 15.00
$ 13.00
B
Direct Labor cost
$ 6.00
$ 9.00
C
Manufacturing Overhead allocated
$ 16.00 [0.4 hrs x $ 40]
$ 122.00 [3.05 hrs x $ 40]
D = A+B+C
Unit Product cost under Conventional System [ANSWER]
$ 37.00
$ 144.00
---Working
Cost pool
Overhead cost
Cost driver
Total cost drivers
Activity Rate per cost driver
Direct Labor hour driver
$ 260,000.00
Direct Labor hours (DLHs)
13,000
$ 20.00
per DLH
Enginerring time driven
$ 260,000.00
Engineering design hour
8,000
$ 32.50
per Eng desig n hour
--Working and Answer
Working
Mercon
Wurcon
A
Direct Material cost
$ 15.00
$ 13.00
B
Direct Labor cost
$ 6.00
$ 9.00
Overheads allocated:
C
Direct Labor hour driver
$ 8.00 [0.4 x $20]
$ 61.00 [3.05 x $20]
D
Enginerring time driven
$ 65.00 [(4000 x 32.5)/2000units]
$ 32.50 [(4000 x 32.5/4000 units]
E = A+B+C+D
Unit Product cost under ABC SYstem [ANSWER]
$ 94.00
$ 115.50
Working
Mercon
Wurcon
A
DLH per unit
0.40
3.05
B
No. of units
2,000
4,000
C =A x B
Total no. of DLHs
800
12,200
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