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16 November, 07:42

Extracts from cost information of Hebar Corp.:Simple L3 Pack Complex L7 Pack Total Setup cost allocated using direct labor-hours $19,250 $5,750 $25,000 Setup cost allocated using setup-hours $13,400 $11,600 $25,000 Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours.

1. Which of the following statements is true of Hebar's setup costs under traditional costing? A. L7 pack is undercosted by $5,750B. L3 pack is overcosted by $5,850C. L3 pack is undercosted by $5,850D. L7 pack is overcosted by $5,850

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  1. 16 November, 10:51
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    The correct answer is option (B).

    Explanation:

    According to the scenario, computation of the given data are as follows:

    First we calculate for L3 pack.

    Setup cost = cost allocated using direct labor-hours - Setup cost allocated using setup-hours

    By putting the value in the formula, we get

    Setup cost = $19,250 - $13,400

    = $5,850 (Positive shows over costed)

    So, L3 pack is overcosted by $5,850
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