7. Setup costs for Weird Al\'s two different accordion products: The Polka, and

Question

7. Setup costs for Weird Al's two different accordion products: The Polka, and The Super amounted to $12,000. Each product has the same number of set-ups. Weird Al used 4,000 labor hours to product The Polka, and 2,000 labor hours to produce The Super. Weird Al currently applies all overhead based on direct labors hours. However, after taking BUAD 2050 Weird Al is considering switching to activity based costing. What is the impact? The Polka is traditional costing The Super is traditional costing. Show work: (indicate under or over-costed) by s under (indicate under or over-costed) by $ under

Explanation / Answer

The Polka is over costed by $ 2,000 under traditional costing.

The Super is under costed by $ 2,000 under traditional costing.

Explanation

Polka cost based on labor hours=12000/6000*4000=$8,000

Polka cost based on setup=12000*1/2=$ 6,000

Polka is over costed by $2,000

Super cost based on labor hours=12000/6000*2000=$4,000

Super cost based on setup=12000*1/2=$6,000

Super is undercosted by $2,000

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