Nixon makes two types of doghouse, plain and super. The company is currently using a traditional costing system with labor hours as the cost driver but is considering change to activity based costing. In preparation for the possible switch, Nixon has identified two cost pools: materials handling and setup. Pertinent data follow:

Total estimated overhead costs are \($150,000\) of which \($40,000\) is assigned to the material handling cost pool and \($110,000\) is assigned to the setup cost pool.

Required:

1. Calculate the overhead assigned to the Plain Doghouse using the traditional costing system based on direct labor hours.

2. Calculate the overhead assigned to the Plain Doghouse using ABC. (Round activity rates or activity proportions to four decimal places if necessary.)

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

Transcribed Image Text:

Number of labor hours Number of material moves Number of setups Plain Doghouse 15,000 Super Doghouse 9,000 300 450 40 80