Question:

Red Tree Manufacturing Inc., $("$the company"$)$ a children's play house manufacturer, is considering bidding on a job.

In order to submit this bid, the company needs to calculate the total cost of performing this job.$$

Financial details for the proposed job are as follows:

Number of inspections$3200$Number of machine hours$1,800$Number of direct labour hours$5,000$Direct materials$$63,000$Direct labour$$54,000$Number of material moves$7,500$

The company has three different categories of overhead.$$

The overhead costs for each of the categories for the next year are as follows:

$$Costs$$Cost Driver$$Expected ActivityMaterials handling$$100,000$Material moves$12,500$Maintenance$$$$180,000$Machine hours$24,000$Inspection$$$$28,000$Inspections$4,000$

Presently the company applies overhead using a plantwide predetermined overhead rate based upon a budgeted direct labour hours of $20,000.$

Using the above information answer the following questions.

PART A:

Assume the company is exploring the use of activity based costing.$$

If the company used activity$-$based costing, the total overhead cost that would be assigned to the job for material handling$$is $$\_\_\_\_\_\_\_\_\_\_\_\_.$

If the company used activity$-$based costing, the total overhead cost that would be assigned to the job for maintenance$$is $$\_\_\_\_\_\_\_\_\_\_\_\_.$

If the company used activity$-$based costing, the total overhead cost that would be assigned to the job for inspections$$is $$\_\_\_\_\_\_\_\_\_\_\_\_.$

If the company used activity$-$based costing, the total material costs plus the total direct labour costs assigned to the job would be $$\_\_\_\_\_\_\_\_\_\_\_.$

If the company used activity$-$based costing, the total cost of the job would be $$\_\_\_\_\_\_\_\_\_\_.$

PART B:

Assume, instead, that the company continues to use the plantwide overhead application rate.

If the company allocated overhead to the job using a plantwide overhead rate, the total overhead cost assigned to the job would be $$\_\_\_\_\_\_\_\_\_\_\_\_\_.$

If the company allocated overhead to the job using a plantwide overhead rate, the total cost of the job would be $$\_\_\_\_\_\_\_\_\_\_.$

PART C:

If the company decided to continue to use the plantwide overhead application rate, which of the following statements is true?

Enter either A or B in the space provided.

A$.$ Use of the plantwide rate would cause the company to over$-$price the job.

B$.$ Use of the plantwide rate would cause the company to under$-$price the job.

Part D:

Read the following statement and indicate if the statement is TRUE $($enter T$)$ or FALSE $($enter F$).$

It would be appropriate to adopt an ABC policy if there was a high cost associated with developing individual cost pools.