Doggle, Inc. has two categories of overhead: maintenance and inspection. Costs e

Question

Doggle, Inc. has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance

$400,000

Inspection

200,000

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

Direct materials

$3,000

Direct labor

$8,000

Machine-hours

200

Number of inspections

2

Direct labor-hours

400

The practical capacity of machine-hours for all jobs during the year is 12,500, and for inspections is 400. These are the cost drivers for maintenance and inspection costs, respectively.

Using the appropriate cost drivers, the total cost of the potential job is:

Select one:

A. $11,000

B. $18,400

C. $36,800

D. $16,300

Maintenance

$400,000

Inspection

200,000

Explanation / Answer

Ans. B $18,400 Calculation: Maintenance overhead rate = 400000 / 12500 machine hours $32 per machine hour Inspection overhead rate = 200000 / 400 $500 per inspection Total cost : Direct material 3000 Direct labor 8000 Maintanance ($32 * 200) 6400 Inspection($500 * 2) 1000 TOTAL 18400

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