Problem:

A company has 2 categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance $360,000

Inspection $750,000

The plant currently applies overhead using direct labor hours and expected capacity of 100,000 direct labor hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus a 20% markup.

Direct materials: $2,210

Direct labor: $5,625

Machine hours: 450

Number of inspections: 4

Direct labor hours: 550

Total expected machine hours for all job during the year are 60,000, and the total expected number of inspections is 4,000.

Required:

Question 1: Compute the total cost of the potential job using direct labor hours to assign overhead.

Question 2: Determine the bid price for the potential job.

Question 3: Compute the total cost of the job using activity-based costing and the appropriate activity drivers.

Question 4: Determine the bid price if activity-based costing is used.

Question 5: Recommend a bid price for the potential job and support the recommendation by explaining which costing method best reflects the actual cost of the job.

Note: Please provide reasons to support your answer