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: Fabric Case Leather Case Number of labor hours 17,000 11,000 Number of material moves 560 1,040 Number of setups 35 135 Total estimated overhead costs are $249,800, of which $192,000 is assigned to the materials handling cost pool and $57,800 is assigned to the setup cost pool.Required :1. Calculate the overhead assigned to the fabric case using the traditional costing system based on direct labor hours. (Do not round intermediate calculations.)Overhead assigned:2. Calculate the overhead assigned to the fabric case using ABC.Overhead assigned:3. Was the fabric case over- or undercosted by the traditional cost system compared to ABC?Fabric case:

Answer 1

(1.) $151,664

(2.) $79100

Step-by-step explanation:

Given the data :

___________Fabric Case ____ Leather Case

labor hours__ 17,000__________ 11,000

material_____ 560 ____________1,040

setups_______ 35 _____________135

Material handling cost pool = $192,000

Setup cost pool = $57,800

1.) Calculate the overhead assigned to the fabric case using the traditional costing system based on direct labor hours.

Total Estimated overhead cost = $249,800

Cost driver = labor hour

Total labor hour = (17000 + 11000) = 28,000 labor hour

For traditional costing method :

Overhead assigned to Fabric case :

Total Estimated overhead / total direct labor hours

= (249,800 / 28,000) * 17000

= $151,664

For The activity-based costing :

[Total materials handling cost pool / Total number of material moves) × fabric case number of material moves)] + [( setup cost pool / Total number of setups) × Fabric case number of setups)]

((192000/1600)*560) + ((57800/170)*35)

= $79100