Problem Two PLANT-WIDE RATE AND ACTIVITY-BASED COSTING Hood Manufacturing Inc. h

Question

Problem Two PLANT-WIDE RATE AND ACTIVITY-BASED COSTING Hood Manufacturing Inc. has four categories of overhead. The expected overhead costs for each of the categories for the next year are as follows: Expected Activity Costs Cost Driver Maintenance Material handling Setups Inspection $510,000 Machine hours 60,000 250,000Material moves 20,000 60,000 Setups 21,000 Inspections 12,000 Currently, the company applies overhead using a predetermined overhead rate based upon budgeted direct labour hours of 100,000. The company has been asked to submit a bid on a proposed job. Usually bids are based upon full manufacturing costs plus a percentage of 10 percent Estimates for the proposed job are as follows: Direct materials Direct labour Number of direct labour hours Number of material moves Number of inspections Number of setups Number of machine hours $30,000 $24,000 8,000 100 120 24 4,000 Required: 1. If the company used activity-based cost drivers to assign overhead, calculate the bid price of the proposed job. 2. If the company used direct labour hours as the cost driver, calculate the bid price of the proposed job.

Explanation / Answer

1) bid price ( activity based) direct materials 30,000 direct labor 24,000 maintenance (510000/60000)*4000= 34000 material handling (250,000/20000)*100= 1250 setups   (60000/3000)*24= 480 inspection (21000/12000)*120= 210 total manufacturing cost 89,940 therefore bid price = 89,940*110%= 98934 2) direct materials 30,000 direct labor 24,000 overhead (841000/100,000)*8000= 67280 total manufacturing cost 121,280 Bid price 121,280*110%= 133408

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