-2 Activity-Bas Cos Reports (LO Kunkel Company makes two products and uses a traditional 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... $10.00 Direct labor cost per unit... . Direct labor-hours per unit... Number of units produced $8.00 $3.75 $3.00 0.20 0.25 10,000 40,000 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 traditional costing system, compute the unit product costs for the two products.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
![EXERCISE 7B-2 Activity-Based Costing Product Costs for External Reports [LO7]
Kunkel Company makes two products and uses a traditional 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 ...
Direct labor cost per unit .
Direct labor-hours per unit
Number of units produced
$10.00
$3.00
$8.00
$3.75
0.25
0.20
10,000
40,000
These products are customized to some degree for specific customers.
Required:
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 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. The Mercon product is expected to need 4,000 engineer-
ing design hours and the Wurcon product is also expected to need 4,000 engineering design
hours. 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.
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