Merkel Industries Has a Traditional Costing System in Which It

question 48

Essay

Merkel Industries 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,Large and Small,about which it has provided the following data:
$$\begin{array} { | l | r | r | } \hline \text { Direct materials } & \text { Large } & \text { Small } \\\text { per unit }&\$17.80&\$55.40\\\hline\text { Direct labor per } & \$ 16.10 & \$ 65.20 \\\text { unit } & & \\\text { Direct labor-hours } & 0.70 & 2.40 \\\text { per unit } & & \\\hline \text { Annual production } & 30,000 & 15,000\\\hline\end{array}$$

The company's estimated total manufacturing overhead for the year is $1,793,790 and the company's estimated total direct labor-hours for the year is 57,000.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:
$$\begin{array} { | l | r | } \hline \text { Activities and Actirity } & \text { Estimated Overhead } \\\text { Measures } & \text { Cost } \\\text { Supporting direct labor (DLHs) } & \$ 285,000 \\\hline \text { Setting up machines (setups) } & 437,190 \\\hline \text { Parts administration (part } & 1,071,600 \\ \text { types) } & \\\hline \text { Total } &\underline{ \$ 1,793,790 }\\\hline\end{array}$$
$$\begin{array} { | l | r | r | r | } \hline \text { Acturities } & \text { Large } & \text { Small } & \text { Total } \\\hline \text { Supporting direct labor } & 21,000 & 36,000 & 57,000 \\\hline \text { Setting up machines } & 798 & 2,565 & 3,363 \\\hline \text { Parts administration } & 1,539 & 1,140 & 2,679 \\\hline\end{array}$$
Required:
a.Determine the unit product cost of each of the company's two products under the traditional costing system.b.Determine the unit product cost of each of the company's two products under activity-based costing system.

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Definitions:

Working Phase Task

A specific activity or objective to be accomplished during the active phase of a project, therapy, or process.

Adlerian Approach

A psychological perspective that emphasizes the importance of childhood experiences, feelings of inferiority, and the individual's striving for superiority or success.

Basic Mistake Assumptions

Inferred beliefs based on early experiences, often subconscious, that lead to patterns of faulty thinking and behavior; critical in cognitive-therapy contexts for identifying and modifying such assumptions.

Initial Phase

The beginning stage or phases of a process, project, therapy, or any activity, often marked by planning, introduction, and preliminary adjustments.