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 $11.00 $9.00
Direct labor cost per unit $3.00 $4.00
Direct labor-hours per unit 1.00 7.50
Number of units produced 2,000 4,000
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 $336,000. 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 Wurcon Total
Engineering design time (in hours) 4,000 4,000 8,000
3. Compute the unit product costs for the two products using the proposed ABC system.

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