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 12,000 765 935 57 133 Total estimated overhead costs are $243,900, of which $204,000 is assigned to the materials handling cost pool and $39,900 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

А B с D $ 243,900 30,000 $ 8.13 1 Fabric Case: 2 1) 3 Total estimated overhead 4 Total direct labor hours 5 Overhead rate 6 7 Overhead applied to fabric case: 8 Overhead rate 9 Direct labors used by Fabric case 10 Overhead assigned 11 $ 8.13 18,000 146,340 12 2) Actity cost Cost drivers Activity rate $ 204,000 1700 $ 120 $ 39,900 190 $ 210 13 14 Materials handling cost 15 Setup cost 16 17 Overhead applied to fabric case: 18 Materials handling cost 19 Setup cost 20 Overhead assigned 21 22 3) 23 Fabric case over-costed by $ 91,800 $ 11,970 $ 103,770 $ 42,570

А B с D 1 Fabric Case: 21) 3 Total estimated overhead 243900 4 Total direct labor hours =18000+12000 5 Overhead rate =+B3/B4 6 7 Overhead applied to fabric case: 8 Overhead rate =+B5 9 Direct labors used by Fabric case 18000 10 Overhead assigned =+B8*B9 11 12 2) 13 Actity cost Cost drivers Activity rate 14 Materials handling cost 204000 =765+935 =+B14/C14 15 Setup cost 39900 =57+133 =+B15/C15 16 17 Overhead applied to fabric case: 18 Materials handling cost +D14*765 19 Setup cost =+D15*57 20 Overhead assigned =+B18+B19 21 22 3) 23 Fabric case over-costed by =+B10-B20

D A B с 26 Leather Case: 27 1) 28 Total estimated overhead $ 243,900 29 Total direct labor hours 30,000 30 Overhead rate $ 8.13 31 32 Overhead applied to Leather case: 33 Overhead rate $ 8.13 34 Direct labors used by Fabric case 12,000 35 Overhead assigned 97,560 36 37 2) 38 Actity cost Cost drivers Activity rate 39 Materials handling cost $ 204,000 1700 $ 120 40 Setup cost $ 39,900 190 $ 210 41 42 Overhead applied to Leather case: 43 Materials handling cost $ 112,200 44 Setup cost $ 27,930 45 Overhead assigned $ 140,130 46 47 3) 48 Leather case undercosted by $ 42,570

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А B с D 26 Leather Case: 27 1) 28 Total estimated overhead 243900 29 Total direct labor hours =18000+12000 30 Overhead rate =+B28/B29 31 32 Overhead applied to Leather case: 33 Overhead rate =+B30 34 Direct labors used by Fabric case 12000 35 Overhead assigned =+B33*B34 36 37 2) Cost drivers Activity rate =765+935 =+B39/C39 =57+133 =+B40/C40 38 Actity cost 39 Materials handling cost 204000 40 Setup cost 39900 41 42 Overhead applied to Leather case: 43 Materials handling cost =+D39*935 44 Setup cost =+D40*133 45 Overhead assigned =+B43+B44 46 47 3) 48 Leather case undercosted by =+B45-B35