Bunker makes two types of briefcase, fabric activity-based costing system. in pr

Question

Bunker makes two types of briefcase, fabric activity-based costing system. in preparation for the possible switch, Bunker has identified two activity cost pools: materials handing and setup. Pertinent data follow and leather. The company is currently using a traditional costing system with labor hours as the cost driver but is considering switching to an Number of labor hours Number of material moves Number of setups Fabric Case Leather Case 8,000 899 102 17,000 551 38 Total 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: 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 Calculate the overhead assigned to the fabic case using ABC. (Round activity rates or activity proportions, and intermediate calculations to four decimal places.) 3. Was the fabric case over- or underoosted by the traditional cost system compared to ABC

Explanation / Answer

1 Overhead assigned = 224650/(17000+8000)*17000= $152762 2 Activity Activity rate Material moves 125 =181250/(551+899) Setups 310 =43400/(38+102) Overhead assigned = (551*125)+(38*310)= $80655 3 Fabrix case was overcosted under traditional system

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