Bunker makes two types of brieicase fabric and leather, The company is currently
ID: 2330284 • Letter: B
Question
Bunker makes two types of brieicase 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 aciviy-based costing system In preparation for the possible switch, Bunker has identified two activity cost pools materials handing and setup. Perinent data follow 0 Total estimated overhead costs are $135,000, of which $115,000 is assigned to the materials handing cost pool and $20,000 is assigned to the setup cost pool. Required: i. Calculate the overhead assigned to the leather case line using the traditional costing system based on direct labor hours. (Do not round intermediate calculations.) 2. Calculate the overhead assigned to the leather case line using ABC 3. Was the leather case over- or undercosted by the traditional cost system compared to ABC? 824 PM O Type here to searchExplanation / Answer
Answer
A
Total Overhead
$ 135,000.00
B
Total Direct Labor Hours
20,000
C = A/B
Overhead rate per direct labor hour
$ 6.75
D
No. of labor hours for Leather Case
8000
E = C x D
Overhead assigned to Leather Case using Traditional Costing
$ 54,000.00
Answer = $ 54,000
Overhead amount
Cost driver
Total no. of cost drivers
Activity rate per cost driver
No. of cost driver for Leather Case
Overhead assigned
[A]
[B]
[C = A/B]
[D]
[E = C x D]
Material handling Cost
$ 115,000.00
No. of material moves
1,150
$ 100.00
667
$ 66,700.00
Setup Cost
$ 20,000.00
No. of setups
80
$ 250.00
52
$ 13,000.00
Total Overhead
$ 135,000.00
Total Overhead assigned to Leather Case as per ABC
$ 79,700.00
Answer = $ 79,700
Working
Overhead assigned as per Traditional Costing
$ 54,000.00
Overhead assigned as per using ABC (Activity Based Costing)
$ 79,700.00
---Answer: The Leather Case was UNDERCOSTED by the traditional cost system compared to ABC because Overhead assigned as per Traditional Method are LESS than Overhead assigned using ABC.
A
Total Overhead
$ 135,000.00
B
Total Direct Labor Hours
20,000
C = A/B
Overhead rate per direct labor hour
$ 6.75
D
No. of labor hours for Leather Case
8000
E = C x D
Overhead assigned to Leather Case using Traditional Costing
$ 54,000.00
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