Krunkel Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labour-hours. Data for the two products for the upcoming year follow:

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 traditional costing system compute the unit product costs for the two products.
2. Management is considering an ABC system in which half of the overhead would continue to be allocated on the basis of direct labour-hours and half would be allocated on the basis of engineering design time. The Mercon product and the Wurcon product are expected to need 4,000 engineering design hours each. Compute the unit product costs for the two products using the proposed ABC system.
3. Explain why the unit product costs differ between the two systems.

Transcribed Image Text:

Wurcon Mercon Direct materials cost per unit. Direct labour cast per unit . Direct labour-hours per unit. Number of units produced . $ 1000 $ 800 $ 3.75 $ 300 0.20 0.25 40000 10,000