The Molotov plant of Kaboom Industries has two categories of overhead: maintenan

Question

The Molotov plant of Kaboom Industries has two categories of overhead: maintenance and inspection.
Costs expected for these categories for the coming year are as follows:

Maintenance

$50,000

Inspection

75,000

The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job:

Direct materials

$500

Direct labor

$2,000

Machine hours

500

Number of inspections

4

Direct labor hours

800

Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.

Using activity-based costing and the appropriate activity drivers, the total cost of the potential job would be

$3,875.

$1,200.

$1,800.

$3,700.

Maintenance

$50,000

Inspection

75,000

Explanation / Answer

Answer is D

Working Note

Particulars Amt (A) Direct materials             500.00 Direct labor          2,000.00 Inspection Cost (50 x 4)             200.00 Maintenance (500 x 2)          1,000.00 Total Cost          3,700.00

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