Question

Required information 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: Number of labor hours Number of material moves Number of setups Fabric Case Leather Case 18,000 7,000 700 1,050 130 1,050 70 Total estimated overhead costs are $254,000, of which $210,000 is assigned to the materials handling cost pool and $44,000 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. 2. Calculate the overhead assigned to the fabric case using ABC. 3. Was the fabric case over- or undercosted by the traditional cost system compared to ABC? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Calculate the overhead assigned to the fabric case using the traditional costing system based on direct labor hours. (Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.) Overhead Assigned

Answer 1

1) Overhead assigned under traditional costing = 254000/25000*7000 = 71120

2) Overhead assigned under ABC = (210000/1750*1050+44000*130/200) = 154600

3) Leather case = Under costed (154600-71120) = 83480