Winter Manufacturing has four categories of overhead: Maintenance £275,000; Materials handling 125,000; Setups 30,000 and Inspection 105,000. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent. Estimates for the proposed job are as follows: Direct materials £15,000; Direct labour (8,000 hours) £12,000; Number of material moves 100; Number of inspections 120; Number of setups 24; Number of machine hours 4,000. The plant manager has heard of a new way of applying overhead that uses cost pools and activity cost drivers. Expected activity for the four activity drivers that would be used are: Machine hours 60,000; Material moves 20,000; Setups 3,000; Quality inspections 26,750 and Direct labor hours 50,000. If Winter Manufacturing uses Quality inspections as its only activity driver, the total cost of the proposed job is
Related questions
Foster Company has determined a raw materials cost of $0.10 perpound; their loaded labor rate is $15 per hour. The Controller forFoster Company has established the following overhead cost poolsand cost drivers:
Overhead Cost Pool | Budgeted Overhead Cost | Cost Driver |
Machine setups | $150,000 | Number of setups |
Material handling | 52,500 | Pounds of raw material |
Quality control inspection | 37,500 | Number of inspections |
Other overhead costs | 90,000 | Machine hours |
Total | $330,000 | |
Overhead Cost Pool | Budgeted Level for Cost Driver | Compute ABC Overhead Rate |
Machine setups | 100 setups | |
Material handling | 50,000 pounds | |
Quality control | 1,000 inspections | |
Other overhead | 15,000 machine hours | |
Order no. 610 has been received for 1,000 units of product. Ithas the following production requirements: | ||
Direct Labor | 20 hours | |
Machine setups | 5 setups | |
Raw material | 10,000 pounds | |
Inspections | 12 inspections | |
Machine hours | 600 machine hours | |
Required:
A. Compute the activity-based costing (ABC) rates for each ofthe four cost drivers; write answers in the table above. (4points)
B. Compute the total overhead that should be assigned to orderno. 610 by using activity-based costing. (4 points)
C. Suppose that Foster were to use a single, predeterminedoverhead rate based on machine hours. Compute the rate per hour andthe total overhead assigned to order no. 610. (4 points)
D. Compute the total product cost of one unitfor order no. 610, using activity-based costing rates. (4points
