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Required information Bunker makes two types of briefcases, 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 pools: materials handling and setup. Pertinent data follow: Number of labor hours. Number of material moves Number of setups Fabric Case Leather Case 28,000 7,000 660 1,340 160 90 Total estimated overhead costs are $367,500, of which $300,000 is assigned to the materials handling pool and $67,500 is assigned to the setup pool. Required: 1. Calculate the overhead assigned to the fabric case using the traditional costing system based on 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 briefcases, 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 pools: materials handling and setup. Pertinent data follow: Number of labor hours. Number of material moves Number of setups Fabric Case Leather Case 28,000 7,000 660 1,340 160 90 Total estimated overhead costs are $367,500, of which $300,000 is assigned to the materials handling pool and $67,500 is assigned to the setup pool. Required: 1. Calculate the overhead assigned to the fabric case using the traditional costing system based on 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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required information Bunker makes two types of briefcases, 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 pools: materials handling and setup. Pertinent data follow: Number of labor hours. Number of material moves Number of setups Fabric Case Leather Case 7,000 1,340 160 28,000 660 90 Total estimated overhead costs are $367,500, of which $300,000 is assigned to the materials handling pool and $67,500 is assigned to the setup pool. Required: 1. Calculate the overhead assigned to the fabric case using the traditional costing system based on 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?
Transcribed Image Text:Required information Bunker makes two types of briefcases, 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 pools: materials handling and setup. Pertinent data follow: Number of labor hours. Number of material moves Number of setups Fabric Case Leather Case 7,000 1,340 160 28,000 660 90 Total estimated overhead costs are $367,500, of which $300,000 is assigned to the materials handling pool and $67,500 is assigned to the setup pool. Required: 1. Calculate the overhead assigned to the fabric case using the traditional costing system based on 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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