Reference no: EM132793071

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

Problem 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.

Problem 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.

Problem C. If PTM's closest competitor expected bidding price is $21,000, would you recommend Baker to bid below $21,000 to ensure PTM win the proposed job? Explain your decision. What would the lowest bidding price you would bid for the proposed job without compromising Baker's profit objective of 30% mark-up price.