Hangover Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed below.
|
Maintenance
|
$200,000
|
|
Material handling
|
32,000
|
|
Setups
|
100,000
|
|
Inspection
|
120,000
|
Currently, overhead is applied using a predetermined overhead rate, based on budgeted direct labor hours. Fifty thousand direct labor hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels that getting this job would result in new business in future years. Bids are based on full manufacturing cost plus 20 percent.
Estimates for the proposed job are as follows:
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Direct materials
|
$ 6,000
|
|
Direct labor (1,000 hours)
|
$10,000
|
|
Number of material moves
|
12
|
|
Number of inspections
|
10
|
|
Number of setups
|
2
|
|
Number of machine hours
|
500
|
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are:
|
Machine hours
|
20,000
|
|
Material moves
|
1,600
|
|
Setups
|
2,500
|
|
Quality inspections
|
41,000
|
1. (a) Determine the amount of overhead that would be allocated to the proposed job if direct labor hours is used as the volume-based cost driver.
(b) Determine the total cost of the proposed job.
(c) Determine the company's bid if the bid is based on full manufacturing cost plus 20 percent.
2. (a) Determine the amount of overhead that would be applied to the proposed project if activity-based cost drivers are used.
(b) Determine the total cost of the proposed job if activity-based costing is used.
(c) Determine the company's bid if activity-based costing is used and the bid is based on full manufacturing cost plus 20 percent.