Bunker makes two types of briefcase, fabric and leather. Thecompany is currently using a traditional costing system with laborhours as the cost driver but is considering switching to anactivity-based costing system. In preparation for the possibleswitch, Bunker has identified two activity cost pools: materialshandling and setup. Pertinent datafollow:Â Â Â Â Â
| Fabric Case | Leather Case |
| Number of labor hours | 28,000 | | 8,000 | |
| Number of material moves | 660 | | 1,340 | |
| Number of setups | 33 | | 217 | |
|
Total estimated overhead costs are $367,500, of which $300,000 isassigned to the materials handling cost pool and $67,500 isassigned to the setup cost pool.
Required:
1. Calculate the overhead assigned to the fabric caseusing the traditional costing system based on direct labor hours.(Do not round intermediate calculations and round yourfinal answer to the nearest whole dollar amount.)
2. Calculate the overhead assigned to the fabriccase using ABC. (Round activity rates or activityproportions, and intermediate calculations to four decimalplaces.)
3. Was the fabric case over- or undercosted by thetraditional cost system compared to ABC?
Bunker makes two types of briefcase, fabric and leather. Thecompany is currently using a traditional costing system with laborhours as the cost driver but is considering switching to anactivity-based costing system. In preparation for the possibleswitch, Bunker has identified two activity cost pools: materialshandling and setup. Pertinent data follow:
| Fabric Case | Leather Case |
| Number of labor hours | 28,000 | | 7,000 | |
| Number of material moves | 660 | | 1,340 | |
| Number of setups | 90 | | 160 | |
|
Total estimated overhead costs are $367,500, of which $300,000 isassigned to the materials handling cost pool and $67,500 isassigned to the setup cost pool.
Required:
1. Calculate the overhead assigned to the leather caseline using the traditional costing system based on direct laborhours. (Do not round intermediatecalculations.)
2. Calculate the overhead assigned to the leathercase line using ABC.
3. Was the leather case over- or undercosted bythe traditional cost system compared to ABC?
