Question

Extracts from cost information of Hebar Corp.:Simple L3 Pack Complex L7 Pack Total​Setup cost allocated using direct labor-hours $19,250​ $5,750​ $25,000​Setup cost allocated using setup-hours $13,400​ $11,600​ $25,000​Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours.

1. Which of the following statements is true of Hebar's setup costs under traditional costing?A. L7 pack is undercosted by $5,750B. L3 pack is overcosted by $5,850C. L3 pack is undercosted by $5,850D. L7 pack is overcosted by $5,850

Answer 1

The correct answer is option (B).

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

First we calculate for L3 pack.

Setup cost = cost allocated using direct labor-hours - Setup cost allocated using setup-hours

By putting the value in the formula, we get

Setup cost = $19,250 - $13,400

= $5,850 ( Positive shows over costed)

So, L3 pack is overcosted by $5,850