Reference no: EM133017447

Question - Zack Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed below:

Maintenance P200,000

Materials handling 32,000

Set-ups 100,000

Inspection 120,000

Currently, overhead is applied using a predetermined overhead rate, based on budgeted direct labor hours. Fifty thousand direct labor hours are budgeted for next year.

The company has been asked to submit a bid for a proposed job. The plant manager feels that getting this job would result in new business in future years. Bids are based on full manufacturing cost plus 20 percent.

Estimates for the proposed jobs are as follows:

Direct Materials P6,000

Direct Labor (1,000 hours) P10,000

Number of Material moves 12

Number of Inspections 10

Number of Set-ups 2

Number of Machine hours 500

In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.

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

Machine Hours 20,000

Material moves 1,600

Set-ups 2,500

Quality inspections 41,000

Required -

1. (a) Determine the amount of overhead that would be allocated to the proposed job if direct labor hours is used as the volume-based cost driver.

(b) Determine the total cost of the proposed job.

(c)'Determine the company's bid if the bid is based on full manufacturing cost plus 20 percent.

2. (a) Determine the amount of overhead that would be applied to the proposed project if activity-based cost drivers are used.

(b) Determine the total cost of the proposed job is activity-based costing is used.

(c) Determine the company's bid if the activity-based costing is used and the bid is based on full manufacturing cost plus 20 percent.