Reference no: EM13818975
Problem: Activity Based Costing - Madcap Manufacturing
Mad Cap Manufacturing Co. produces 80 different types of hats and caps. Lately, sales and profits have been declining, although the overall market for hats and caps has actually been growing. The companyhas, in the past, used a job-order costing system for each production run. Under this system, factoryoverhead was allocated on the basis of direct labour hours. However, direct labour is now a relativelysmall part of production costs, as the company has automated its factory in the past two years.You were hired as a consultant to the plant manager last November. You have analyzed the budgetedcosts and activities for 20x7 and broken them down as follows:Direct materials (100,000 meters) $75,000Direct labour (10,000 hours) 160,000Set-up costs (750 set-ups) 22,500 Maintenance (20,000 machine hours) 40,000Production scheduling (500 batches) 7,500Inspection (800 inspections) 16,000Material handling (100,000 meters) 6,000Depreciation (20,000 machine hours) 200,000Power (20,000 machine hours) 8,000The company has been asked to bid on an order for 1,000 caps with a special design. This order isforecast to require the following:Direct materials 500 metersDirect labour 60 hoursSet-ups 2Inspections 2Machine hours 100 hours The order would be produced in one production run (batch). The company normally sets its selling priceat 40% above full manufacturing cost.
Required -
How much would Mad Cap Manufacturing Co. bid on this special order using direct labour hours toapply factory overhead?Repeat requirement (1), but use ABC to apply the factory overhead
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