The Overdale plant has two categories of overhead: maintenance and inspection. C
ID: 2562371 • Letter: T
Question
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
Maintenance $120,000
Inspection $200,000
The plant currently applies overhead using direct labor hours and expected capacity of 80,000 direct labor hour. Overdale uses only one overhead rate for the entire plant.
The following data have been assembled in developing a bid for a proposed job:
Direct materials $1,500
Direct labor $5,000
Machine hours 400
Number of inspections 6
Direct labor hours 750
Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.
a) assume the traditional system of overhead allocation. Using direct labor hours to assign overhead, the total cost of the potential job would be.
b) Using activity-based costing and the appropriate cost drivers (machine hours for maintenance costs and number of inspections for inspection costs), the total cost of the potential job would be
Explanation / Answer
a) assume the traditional system of overhead allocation. Using direct labor hours to assign overhead, the total cost of the potential job would be
Overhead rate under traditional system = Total overhead/total labour hours
= 320000/80000
Overhead rate under traditional system = 4 per labour hour
CALCULATE TOTAL COST OF THE JOB :
b) Using activity-based costing and the appropriate cost drivers (machine hours for maintenance costs and number of inspections for inspection costs), the total cost of the potential job would be
Direct materials 1500 direct labour 5000 Overhead cost (750*4) 3000 Total cost 9500Related Questions
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