Question

Extracts from cost information of Hebar Corp.:

Simple L3 Pack Complex L7 Pack Total
​Setup cost allocated using direct labor-hour$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. Which of the following statements is true of Hebar's setup costs under traditional costing?
A. L7 pack is undercosted by $5,750
B. L3 pack is overcosted by $5,850
C. L3 pack is undercosted by $5,850
D. L7 pack is overcosted by $5,850

Answer 1

B. L3 pack is overcosted by $5,850

Step-by-step explanation:

The statements that is true of Hebar's setup costs under traditional costing

Using this formula

Hebar's setup costs =Setup cost allocated using direct labor hours - Setup cost allocated using setup-hours

Where ,

Setup cost allocated using direct labor hours =$19,250

Setup cost allocated using setup-hours =$13,400

Let plug in the formula

Hebar's setup costs=$19,250 − $13,400 = $5,850

Therefore the statements that is true of Hebar's setup costs under traditional costing will be $5,850