. Setup costs for Weird Al’s two different accordion products: The Polka, and Th
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Question
. Setup costs for Weird Al’s two different accordion products: The Polka, and The Super amounted to $9.000. Each product has the same number of set-ups. Weird Al used 6,000 labor hours to product The Polka, and 12,000 labor hours to produce The Super. Weird Al currently applies all overhead based on direct labors hours. However, after taking BUAD 2050 Weird Al is considering switching to activity based costing. What is the impact?
The Polka is _____________________(indicate under or over-costed) by $__________ under traditional costing.
The Super is _____________________(indicate under or over-costed) by $__________ under traditional costing.
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Explanation / Answer
Overheads assigned Under Traditional costing Polka: $ 9000 /18,000 hours *6000 hours : $ 3,000 Super: $9000 /18000 hours *12000 hours: $6,0000 Overheads assogned based on Activity (Equal setups) Ploka: $ 9000 *1/2 = $4500 Super: $ 9000*1/2 = 4500 Therefore, The Polka is under-costed by $1500 under Traditional costing The Super is over-costed BY 1,500 under Traditional costing
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