Bunker makes two types of briefcase, fabric and leather. The company is currentl
ID: 2493704 • 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:
Total estimated overhead costs are $152,000, of which $125,000 is assigned to the materials handling cost pool and $27,000 is assigned to the setup cost pool.
Calculate the overhead assigned to the leather case line using the traditional costing system based on direct labor hours. (Round your answer to 2 decimal places.)
Overhead Assigned
Calculate the overhead assigned to the leather case line using ABC. (Round activity rates or activity proportions to four decimal places and round your final answer to nearest dollar amount.)
Overhead Assigned
Was the leather case over- or undercosted by the traditional cost system compared to ABC?
Letter Case
Fabric Case Leather Case Number of labor hours 14,000 7,000 Number of material moves 525 725 Number of setups 42 58Explanation / Answer
Answer:1 Predetermined overhead rate=Overhead cost/Direct labor hours
=$152000/21000
=$7.24 per DLH
Overhead assigned=7000 DLH*$7.24
=$50680
Answer:2 Overhead assigned=$88160
Answer:3 leather case was undercosted by the traditional cost system compared to ABC.
Cost pool Amount Total activity Basis Cost per activity Leather case materials handling cost pool 125000 1250 Number of material moves 100 72500 Set up 27000 100 Number of setups 270 15660 Total 152000 88160Related Questions
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