Burkr makes two types of briefcase fabric and leather. The company is currently
ID: 2330283 • Letter: B
Question
Burkr makes two types of briefcase fabric and leather. The company is currently using a traditional costing system with labor hours as the cost driver but is considering switching to an acthvity-based costing system.In 551 38 of setups 102 otal estimated overhead costs are $224,650, of which $181,250 is assigned to the materials handling cost pool and $43.400 is assigned to the setup cost pool Required: to the fabric case using the traditional costing system based on direct labor hours. (Do not round intermediate calculations and round your final answer to the nearest whole dollar amount) Calculate the overhead assigned to the fabric case using ABC. (Round activity rates or activity proportions, and intermediate calculations to four decimal places.) Was the fabric case over- or undercosted by the traditional cost system compared to ABC?Explanation / Answer
,note: here total labour hours =17,000 + 8,000 =>25,000 hours.
overhead rate based on labour hours = estimated overhead / total labour hours.
=>$224,650 / 25,000
=>$8.986.
note 2:
activity rates : material handling cost pool = cost / total activity
=>$181,250 / (551+899)
=>$181,250 / 1450
=>$125.
set up cost pool = $43,400 / 140
=>$310.
1.overhead assigned to fabric case using the traditional costing system based on direct labour hours.
=>number of direct labour hours of fabric case * overhead rate
=>17,000*$8.986
=>$152,762.
2.overhead assigned to fabric case using ABC:$80,655
3.Overcosted.
Fabric case was overcosted by traditional cost system as compare to ABC.
(since overhead assigned under traditional cost system is greater than overhead assigned under ABC).
material handling ($125*551) $68,875 set ups ($310*38) 11,780 Total overhead assigned to fabric case under ABC $80,655Related Questions
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