1. Hangover Manufacturing has four categories of overhead. The four categories and expected overhead

1. Hangover Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed below.

Maintenance

$200,000

Material handling

32,000

Setups

100,000

Inspection

120,000

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 materials

$ 6,000

Direct labor (1,000 hours)

$10,000

Number of material moves

12

Number of inspections

10

Number of setups

2

Number of machine hours

500

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:

Machine hours

20,000

Material moves

1,600

Setups

2,500

Quality inspections

41,000

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

percent.

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.

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