Reference no: EM132715626

Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows:

Maintenance $510,000
Materials handling $250,000
Setups $ 60,000
Inspection $210,000

• Currently, overhead is applied using traditional costing method based on budgeted direct labor hours. Next year budgeted total overhead is $1,030,000 and budgeted machine hours is 60,000 hours.

• The company has been asked to submit a bidding price for a proposed job. The plant manager feels that obtaining this job would result in new business opportunities in future years. Usually bids are based upon full manufacturing cost plus 10 percent mark up.

Estimates for the proposed job are as follows:

Direct materials $30,000
Direct labor (8,000 hours) $24,000
Number of materials moves 100 moves
Number of inspections 120 inspections
Number of setups 24 set ups
Number of machine hours 4,000 machine 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 as follows:

Machine hours 60,000 Mhrs
Material moves 2,000 moves
Setups 1,000 setups
Quality inspections 5,000 inspections

Problem 1: If Ray Manufacturing used activity-based costing (ABC) method to assign overhead, the total cost of the proposed job would be _________________

A. $106,980

B. $54,000

C. $116,400

D. $1,400