Exercise 4-7 Contrast ABC and Conventional Product Costs[LO4-2, LO4-3, LO4-4]

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	$	9.00		$	7.00
Direct labor cost per unit	$	15.00		$	17.00
Direct labor-hours per unit		0.40			4.80
Number of units produced		4,000			8,000

These products are customized to some degree for specificcustomers.

Required:

1. The company's manufacturing overhead costs for the year areexpected to be $1,600,000. 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)		8,000			8,000			16,000

Compute the unit product costs for the two products using theproposed ABC system.

(For all requirements, do not round intermediatecalculations. Round your final answers to 2 decimalplaces.)