Question

Hel CH 4 HW 0.60 points based costing system. In for the possible switch, Bunker has identfied two activity cost pools: materials handling and setup. Pertinent data follow 780 70

Answer 1

1.) Calculation of overhead cost assigned to leather case using traditional costing:
Total labor hours= 16000+9000= 25000
Overhead cost= 194500
Overhead cost per hour= overhead cost/ labor hours
= 194500/25000=7.78
Overhead cost allocated to leather case= 9000*7.78= $70020
2) Calculation of overhead cost assigned to leather case using ABC:
(1)Calculation of activity rate
Activity cost pools	Estimated overhead(a)	Estimated cost driver(b)	activity rates((a)/(b))
Machine moves	1,62,500	1300	125.00
Setups	32,000	100	320.00
Calculation of total overhead cost:
Activity cost pools	(a) cost driver	activity rates(b)	cost(a*b)(in$)
Machine moves	780	125.00	97500.00
Setups	70	320.00	22400.00
Overhead cost allocated to leather case			119900.00
3) Overhead cost is underapplied in case of traditional costing as compared to ABC.