Question

5. Setup costs for Weird Al’s two different accordion products: The Polka, and The Super amounted...

5. Setup costs for Weird Al’s two different accordion products: The Polka, and The Super amounted to $24,000. Each product has the same number of set-ups. Weird Al used 4,000 labor hours to product The Polka, and 2,000 labor hours to produce The Super. Weird Al currently applies all overhead based on direct labors hours. However, after taking ACC 201 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. Show work:

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Answer #1
The Polka is over-costed by $4,000 under traditional costing.
The Super is under-costed by $4,000 under traditional costing.
Explanation
Polka cost based on labor hours (24000/6000*4000) $ 16,000
Polka cost based on setup (24000/2) $ 12,000
Polka is over-costed $   4,000
Super cost based on labor hours (24000/6000*2000) $   8,000
Super cost based on setup( 24000/2) $ 12,000
Super is undercosted $   4,000
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