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:

Total estimated overhead costs are $150,000, of which $110,000 is assigned to the materials handling cost pool and $40,000 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. (Round activity rates or activity proportions to four decimal places if necessary.)

3. Was the fabric case over- or under-costed by the traditional cost system compared to ABC?

Transcribed Image Text:

Fabric Case Leather Case Number of labor hours Number of material moves Number of setups 15,000 440 40 9,000 660 80