1. Hangover Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed below.
Currently, overhead is applied using a predetermined overhead rate, based on budgeted direct
labor hours. Fifty thousand direct labor hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels
that getting this job would result in new business in future years. Bids are based on full
manufacturing cost plus 20 percent.
Estimates for the proposed job are as follows:
Direct labor (1,000 hours)
Number of material moves
Number of inspections
Number of setups
Number of machine hours
In the past, full manufacturing cost has been calculated by allocating overhead using a
volume-based cost driver, direct labor hours. The plant manager has heard of a new way of
applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are:
1. (a) Determine the amount of overhead that would be allocated to the proposed job if
direct labor hours is used as the volume-based cost driver.
(b) Determine the total cost of the proposed job.
(c) Determine the company's bid if the bid is based on full manufacturing cost plus 20
2. (a) Determine the amount of overhead that would be applied to the proposed project if
activity-based cost drivers are used.
(b) Determine the total cost of the proposed job if activity-based costing is used.
(c) Determine the company's bid if activity-based costing is used and the bid is based on
full manufacturing cost plus 20 percent.