Precision Tools Manufacturing (PTM) has four categories of overhead. The four categories and the expected overhead costs for each category for the year are as follows:

Maintenance $140,000

Materials handling 60,000

Setups 50,000

Inspection 100,000

Expected activity for the four activity-based cost drivers that would be used are as follows:

Machine hours 16,000 hours

Material moves 4,000 moves

Setups 2,000 set ups

Quality inspections 8,000 inspections

PTM 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 30 percent.

Estimates for the proposed job are as follows:

Direct materials $5,000

Direct labor $7,500

Number of materials moves 8 moves

Number of inspections 5 inspections

Number of setups 3 set ups

Number of machine hours 300 hours

Direct labor hours 750 hours

A. For this year, 50,000 direct labor hours are budgeted. Using the traditional costing method, calculate the total cost of the proposed job and the company's bidding price if the bid is based upon 30% mark-up from full 

manufacturing.

 

B. Using activity based costing method, calculate the total cost of the proposed job and the company's bidding price if the bid is based upon 30% mark-up from full manufacturing. (3 marks)

Answer rating: 100% (QA)

A Traditional Costing Method 1 Calculate the Overhead Rate for each Cost Driver Maintenance Rate Maintenance Cost Machine Hours 140000 16000 hours 875 ... View the full answer