Kunkel Company makes two products and uses a conventional costing system in whic
ID: 2367215 • 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: Mercon Wurcon Direct materials cost per unit $ 12.10 $ 22.80 Direct labor cost per unit $ 6.70 $ 3.60 Direct labor-hours per unit 0.48 0.28 Number of units produced $ 21,000 $ 83,000 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 3,600 5,600 -------------------------------------------------------------------------------- Compute the unit product costs for the two products using the proposed ABC system. (Round your final answers to 2 decimal places.)Explanation / Answer
Kunkel Company
Calculate Overhead rate:
Total overheads -- $336,000
Total labor hours
10000 x 0.2 + 40000 x .25 = 12,000 labor hours
Rate per labor hour = $336,000/12,000 = $28
Apply the overhead rate:
Direct materials cost per unit--- $10.00---- $8.00
Direct labor cost per unit -------------3.00 -----3.75
Direct labor-hours per unit -----------5.60 -----7.00
Total per unit cost --------------------18.60 ----18.75
In the second part applying ABC in part is not a good practice.
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