E4-13 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-

Question

E4-13 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-5, 4-6] Bunker 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 activity-based costing system. In preparation for the possible switch, Bunker has identified two activity cost pools: materials handling and setup. Pertinent data follow: Number of labor hours Number of material moves Number of setups Fabric Case 18,000 765 57 Leather Case 12,000 935 133 Total estimated overhead costs are $243,900, of which $204,000 is assigned to the materials handling cost pool and $39,900 is assigned to the setup cost pool. Required 1. Calculate the overhead assigned to the leather case line using the traditional costing system based on direct labor hours. (Do not round intermediate calculations.) Overhead Assigned$ 97,560 2. Calculate the overhead assigned to the leather case line using ABC. Overhead Assigned

Explanation / Answer

Hi ,

This is a simple qestion from costing area , no need of worries .

Your first answer is exactly correct

2) $ 140,130

Cost per activity ;

Cost per activity = Cost / total activity related to cost

- Material handling = $ 204,000 / (765 +935 moves ) = $120 per moves

- Handling cost = $ 39,900 / (57 + 133 setups) = $210 per setup

Activity Fabric case Leather case a Material handling $91,800 $112,200 [$120 * 765 moves ) [$120 * 935 moves ] b Setup cost $11,970 $27,930 [$210 * 57 setups ] [$210 * 133 setup] Totals $103,770 $140,130

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