Problem Two

PLANT-WIDE RATE AND ACTIVITY-BASED COSTING (LO 1, 2)

Mattawa Manufacturing Inc. has four categories of overhead. The expected overhead costs for each of the categories for the next year are as follows:

Expected

CostsCost DriverActivity

Maintenance$510,000Machine hours60,000

Material handling250,000Material moves20,000

Setups60,000Setups3,000

Inspection21,000Inspections12,000

Currently, the company applies overhead using a predetermined overhead rate based upon budgeted direct labour hours of 100,000.

The company has been asked to submit a bid on a proposed job. Usually

bids are based upon full manufacturing costs plus a percentage of 10 percent.

Estimates for the proposed job are as follows:

Direct materials$30,000

Direct labour$24,000

Number of direct labour hours8,000

Number of material moves100

Number of inspections120

Number of setups24

Number of machine hours4,000

Required:

1. If the company used activity-based cost drivers to assign overhead, calculate the bid price of the proposed job.

2. If the company used direct labour hours as the cost driver, calculate the bid price of the proposed job.