Bergamo Computer Company, which has been in operation for ten years, produces a line of computer servers for small to midsize companies. Ancona Realtors, Ltd$.,$ placed an order for eighty servers and the order has just been completed. Bergamo recently shifted its cost assignment approach to an activity based system. Amy Jones, the controller of Bergamo, is interested in finding out the impact that the activity based costing $($ABC$)$ system had on the Ancona order. Raw materials, purchased parts, and production labor costs for the Ancona order are as follows.

BERGAMO COMPUTER COMPANY

COSTS AND OTHER PRODUCTION DATA FOR ANCONA ORDER

Cost of Raw Materials

$

$36,750$

Cost of Purchased Parts

$

$21,300$

Production Direct Labor Hours

$220$

Average Direct Labor Pay Rate

$

$15\mathrm{.}25$

Information concerning manufacturing overhead costs are attached.

REQUIRED: $(1)$ Using the attached forms, compute the total cost of the Ancona order using

traditional full absorption costing. Round all calculations to the nearest whole dollar.

$(2)$

Using the attached forms, compute the total cost of the Ancona order using activity based costing. Round all calculations to the nearest whole dollar.

$(3)$

Using the attached forms, compute the difference in the amount of cost assigned to the Ancona order resulting from the change to activity based costing.

$(4)$

Which method do you think is more accurate? Explain your answer.BERGAMO COMPUTER COMPANY

DATA RELATING TO APPLYING MANUFACTURING OVERHEAD USING TRADITIONAL COSTING

Traditional Costing: Manufacturing overhead costs are assigned to production at a rate of $270\%$ of direct labor cost.

BERGAMO COMPUTER COMPANY

DATA RELATING TO APPLYING MANUFACTURING OVERHEAD USING ACTIVITY BASED COSTING

Activity Usage

Activities

Engineering Design

Work Cell Setups

Parts Production Work Cell

Product Testing Cell

Packaging Work Cell

Cost Drivers

Engineering Hours

Number of Setups

Machine Hours

Cell Hours

Cell Hours

Cost Rates

$$19\mathrm{.}50$ per engineering hour

$$29\mathrm{.}40$ per setup

$$26\mathrm{.}30$ per machine hour

$$32\mathrm{.}80$ per cell hour

$$17\mathrm{.}50$ per cell hour

Ancona Order

$32$ engineering hours

$11$ setups

$134$ machine hours

$52$ cell hours

$22$ cell hours