Bunker makes two types of briefcase fabric and leather The c

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 6,000 1,428 238 15,000 672 32 Total estimated overhead costs are $393,300, of which $315,000 is assigned to the materials handling cost pool and $78,300 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 and round your final answer to the nearest whole dollar amount.) erh ead Assigned 2. Calculate the overhead assigned to the fabric case using ABC. (Round activity rates or activity proportions, and intermediate calculations to four decimal places.) Overhead Assigned 3. Was the fabric case over-or undercosted by the traditional cost system compared to ABC? Fabric Case

Solution

1) Overhead assigned to fabric case using traditional costing :

Overhead assigned = (393300/21000*15000) = $280929

2) Overhead assigned to fabric case using ABC :

Overhead assigned = (315000/2100*672+78300/270*32) = 110080

3) Fabrice case Over applied by 170849