Welk Manufacturing Corporation Has a Traditional Costing System in Which

Essay

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 labour-hours (DLHs).The company has two products,H16Z and P25P,about which it has provided the following data:
$$\begin{array} { | l | r | r | } \hline & \text { H16Z } & \text { P25P } \\\hline \text { Direct materials per unit } & \$ 10.20 & \$ 50.50 \\\hline \text { Direct labour per unit } & \$ 8.40 & \$ 25.20 \\\hline \text { Direct labour hours per unit } & 0.40 & 1.20 \\\hline \text { Annual production } & 30,000 & 10,000 \\\hline\end{array}$$
The company's estimated total manufacturing overhead for the year is $1,464,480 and the company's estimated total direct labour-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:
$$\begin{array} { | l | r | } \hline \text { Activities and Activity Measures } & \text { Estimated Overhead Cost } \\\hline \text { Supporting direct labour (DIHS) } & \$ 552,000 \\\hline \text { Setting up machines (setups) } & 132,480 \\\hline \text { Parts adrministration (part types) } & 7 8 0 , 0 0 0 \\\hline \text { Total } & \$ 1,464,480 \\\hline\end{array}$$
$\begin{array}{|l|r|r|r|}\hline \text { Activities } & \text { H16Z } & \text { P25P } & \text { Total } \\\hline \begin{array}{l}\text { Supporting direct } \\\text { labour }\end{array} & 12,000 & 12,000 & 24,000 \\\hline \text { Setting up machines } & 864 & 240 & 1,104 \\\hline \text { Part administration } & 600 & 960 & 1,560 \\\hline\end{array}$

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.