Question

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

Answer 1

Answer:

$93,750

Explanation:

Required: "Calculate the overhead assigned to the fabric case using the traditional costing system based on direct labor hours."

Total estimated overhead costs (A) = 150,000

Total labor hours (B) = 15,000 + 9,000 = 24,000

Overhead allocation rate (C) = A/B = 150,000/24,000

Overhead allocation rate (C) = $6.25 Per labor hour

Total labor hours used by Fabric case (D) = 15,000 Hours

Overhead assigned to the fabric case (C*D) = $6.25 Per labor hour * 15,000 Hours = $93,750