Bunker makes two types of briefcase, fabric and leather. The company is currentl
ID: 2402244 • Letter: B
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:
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 matarial moves Number of sstups Fabric Case Leather Case 7,000 696 13,000 Total estimated overhead costs are $143,400, of which $120,000 is assigned to the materials handling cost pool and $23,400 is assigned to the setup cost pool Required: 1. Calculate the overmead assigned to the fabric case using the traditicnal costing system based on direct labor hours. (Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.) 2. calculate the overmead assigned to the tabrc case using ABC. (Round activity rates or activity proportions, and intermediate calculations to four decimal places.] 3. Was the abric case over- or undercosted by the traditional cost system compared to ABC? Fabric CaseExplanation / Answer
(1) O/H Assigned to Fabric using Traditional Method (based on direct labour hours) :-
O/H Rate = Total OH cost/Total Direct Labour Hr
= 143400/20000 hrs = $7.17
O/H Assign to Fabric case = 13000 hrs * 7.17 = $93210
(2) ) O/H Assigned to Fabric using ABC :-
O/H assign related to Material handling = [120000/(504 + 496)] * 504 = $60480
O/H assign related to Setup = [23400/(42 + 48)] * 42 = $10920
Total O/H assign = 60480 + 10920 = $71400
(3) In Traditional system Fabric case are overcosted as compared to the ABC system
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