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 10,000; Material moves 20,000; Setups 5,000; Quality inspections 12,000 and Direct labor hours 50,000. If Winter Manufacturing uses Direct labor hours as its only activity driver, and the markup rate is 15%, the price for the job is

Select one:

a. £129,490

b. £127,490

c. Cannot be determined.

d. £128,490

e. £120,490

Explanation / Answer

Total overhead cost :275000+125000+30000+105000=535000

Overhead cost per hour :535000/50000 DLH

          = $ 10.7 per DLH

Bidding =Total cost(1+%)

      = 112600(1+.15)

      = $ 129490

correct option is "A"

Direct material 15000 Direct labor 12000 overhead [10.7*8000] 85600 Total cost of job 112600

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