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 6,000 696 63 14,000 504 27 Total estimated overhead costs are $143,400, of which $120,000 is assigned to the materials handling cost pool and $23,400 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?
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 6,000 696 63 14,000 504 27 Total estimated overhead costs are $143,400, of which $120,000 is assigned to the materials handling cost pool and $23,400 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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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
14,000
6,000
504
696
27
63
Total estimated overhead costs are $143,400, of which $120,000 is assigned to the materials handling cost pool and
$23,400 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?
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