Kunkel Company makes two products and uses a conventionalcosting system in which a single plantwide predetermined overheadrate is computed based on direct labor-hours. Data for the twoproducts for the upcoming year follow:
| Mercon | Wurcon |
| Direct materials cost per unit | $ | 10.00 | | $ | 7.00 | |
| Direct labor cost per unit | $ | 7.00 | | $ | 10.00 | |
| Direct labor-hours per unit | | 1.40 | | | 6.80 | |
| Number of units produced | | 1,000 | | | 2,000 | |
|
These products are customized to some degree for specificcustomers.
Required:
1. The company's manufacturing overhead costs for the year areexpected to be $450,000. Using the company's conventional costingsystem, compute the unit product costs for the two products.
2. Management is considering an activity-based costing system inwhich half of the overhead would continue to be allocated on thebasis of direct labor-hours and half would be allocated on thebasis of engineering design time. This time is expected to bedistributed 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 theproposed ABC system.
