Winter Manufacturing has four categories of overhead: Maintenance £275,000; Mate

Question

Winter Manufacturing has four categories of overhead: Maintenance £275,000; Materials handling 125,000; Setups 30,000 and Inspection 105,000. 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 10 percent. Estimates for the proposed job are as follows: Direct materials £15,000; Direct labour (8,000 hours) £12,000; Number of material moves 100; Number of inspections 120; Number of setups 24; Number of machine hours 4,000. The plant manager has heard of a new way of applying overhead that uses cost pools and activity cost drivers. Expected activity for the four activity drivers that would be used are: Machine hours 60,000; Material moves 20,000; Setups 3,000; Quality inspections 12,000 and Direct labor hours 50,000. If Winter Manufacturing uses Machine hours as its only activity driver, the total cost of the proposed job is

Select one:

a. £62,667

b. £63,445

c. £31,221

d. Cannot be determined.

e. £34,900

This solution was posted over an hour ago and I think it will be irrelevant to me if it arrives later. So Sad.

Explanation / Answer

a.62,667.

total overhead costs = pounds275,000 + 125,000 + 30,000 + 105,000 =>pounds535,000.

given that only machine hours is used as activity driver.

=>overhead cost per machine hours = pounds535,000 / 60,000 machine hours =>pounds8.91666667.

total cost of proposed job, if only machine hours is the activity driver.

Direct material 15,000 direct labour 12,000 overhead (4000 machine hours * piunds 8.9166667) 35,667 total cost of proposed job pounds62,667

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