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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 companys two products
under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the companys two products
under activity-based costing system.