A plant has two categories of overhead: maintenance and inspection. Costs expect

ID: 2514541 • Letter: A

Question

A plant has two categories of overhead: maintenance and inspection.

Costs expected for these categories for the coming year are as follows:

Machine maintenance $120,000

Inspection $200,000

Total expected overhead: $320,000 (120,000 + 200,000 from above)

Expected activity levels for the coming year are as follows:

80,000 direct labor hours

40,000 machine hours

2,500 inspections

The following data has been assembled for use in developing a bid for a proposed job:

What the cost of the potential job would be using direct labor hours to assign all overhead (the traditional method)?

Direct materials $1,500 Direct labor $5,000 Machine hours 400 Number of inspections 6 Direct labor hours 750

The cost of the potential job using direct labor hours to assign all overhead would be $9,500

Direct Materials $1,500

Direct Labour $5,000

Overhead ($320,000/80,000) x 750 $3,000

Total cost $9,500

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