Lawson Manufacturing has four categories of overhead. The four categories and ex
ID: 2546626 • Letter: L
Question
Lawson Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:
Maintenance
$180,000
Materials handling
27,000
Setups
24,000
Inspection
90,000
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 20,000 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 obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows:
Direct materials
$3,000
Direct labor (600 hours)
$9,000
Number of material moves
4
Number of inspections
6
Number of setups
8
Number of machine hours
80
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are:
Machine hours
5,000
Material moves
600
Setups
200
Quality inspections
1,000
If the number of inspections is used to assign inspection costs, the amount of inspection costs allocated to the proposed job would be
$2,700.
$ 900.
$ 540.
$ 990.
Maintenance
$180,000
Materials handling
27,000
Setups
24,000
Inspection
90,000
Explanation / Answer
Amount of inspection costs allocated to the proposed job = 90000/1000*6= $540 Option C is correct
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