Bunker makes two types of briefcase, fabric and leather. The company is currentl

Question

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 Leather Case 11,000 667 38 12,000 483 42 Total estimated overhead costs are $135,000, of which $115,000 is assigned to the materials handling cost pool and $20,000 is assigned to the setup cost pool. Required: 1. Calculate the overhead assigned 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.) Overhead Assigned 70,440 2. Calculate the overhead assigned to the fabric case using ABC. (Round activity rates or activity proportions, and intermediate calculations to four decimal places.) Overhead Assigned 58,800 3. Was the fabric case over-or undercosted by the traditional cost system compared to ABC? Fabric Case r-costed

Explanation / Answer

1 Overhead assigned = 135000/(12000+11000)*12000= $70435 2 Activity rates Materials moves 100 =115000/(483+667) Setups 250 =20000/(42+38) Overhead assigned =(483*100)+(42*250)= $58800 3 Fabric case Over-costed by traditional costing

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