The traditional costing system Assignments | Online Assignments Services

Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing

overhead to its products using a predetermined overhead rate based on direct labor-hours

(DLHs). The company has two products, H16Z and P25P, about which it has provided the

following data:

H16Z P25P

Direct materials per unit……………. $10.20 $50.50

Direct labor per unit …………………. $8.40 $25.20

Direct labor-hours per unit ………… 0.40 1.20

Annual production……………………. 30,000 10,000

The company’s estimated total manufacturing overhead for the year is $1,464,480 and the

company’s estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its

unit product costs for external reports. Data for this proposed activity-based costing

system appear below:

Activities and Activity Measures Estimated Overhead Cost

Supporting direct labor (DLHs)…………….. $ 552,000

Setting up machines (setups) ………………… 132,480

Parts administration (part types)……………. 780,000

Total………………………………………………….. $1,464,480

H16Z P25P Total

Supporting direct labor …… 12,000 12,000 24,000

Setting up machines……….. 864 240 1,104

Parts administration ……….. 600 960 1,560

Required:

a. Determine the manufacturing overhead cost per unit of each of the company’s two products

under the traditional costing system.

b. Determine the manufacturing overhead cost per unit of each of the company’s two products

under activity-based costing system.