E4-12 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3,4-4, 4-5
ID: 2337770 • Letter: E
Question
E4-12 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3,4-4, 4-5, 4-6] 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 21,000 630 35 Leather Case 11,000 1,170 175 Total estimated overhead costs are $282,300, of which $234,000 is assigned to the materials handling cost pool and $48,300 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.) Overhead 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 AssignedExplanation / Answer
ANSWER:
By using assigning costs using traditional systems ABC is,
Here we have to find 3 cases there are,
1.Overhead allocation under traditional costing,
2.Overhead allocation under ABC,
3.Fabric case is overloaded or not.
Now we have to determine above cases,
1.Overhead allocation under traditional costing:
We know that,
Overhead rate= Total overhead / Total direct labor hour
Where,
Total overhead=282300
Direct labor cost= 21000+11000=32000
Therefore,
Overhead rate=282300 / 32000=8.8218
Fabric case= No.of labors hours in fabric case*Overhead rate=21000*8.8218= 185257.8
Leather case= No.of labor hours in leather case*Overhead rate=11000*8.8218=970398.8
2.Overhead allocation under ABC:
3. Fabric case overloaded or not:
Yes, Fabric case is overloaded by the traditional cost system compared to ABC
Overhead Overhead cost Allocation base Expected activity Activity rate Fabric case Leather case Materials handling 234000 Material moves 1800 150 per moves 150*630=94500 150*11000=1650000 Setups 48300 Setups 210 270 per setups 270*35=9450 270*1170=315900 Total 103950 1965900Related Questions
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