Felix Corporation has four activities with the following costs: Machining $300,0

Question

Felix Corporation has four activities with the following costs: Machining $300,000 Materials handling 225,000 Assembling 150,000 Inspection 150,000 Felix uses an activity-based costing system and has provided the following levels for the four cost drivers: Machine hours 60,000 Material moves 15,000 Parts 18,750 Quality inspections 30,000 The cost drivers for machining, materials handling, assembling, and inspection are, respectively; machine hours, material moves, parts, and quality inspections. The company has been asked to submit a bid for a proposed job. Estimates for the job are as follows: Direct materials $42,000 Number of material moves 22 Number of inspections 42 Number of machine hours 78 Number of parts 60 i.) Determine the total indirect costs for this job. (5 marks) ii.) Determine the total manufacturing costs for this job. (5 marks) iii) Determine the company’s bid if the bid is based upon total manufacturing costs plus 30%.(5 marks)

Explanation / Answer

1 ABC system Estimated cost Cost driver Cost per driver Machining 300000 60000 5 Material handling 225000 15000 15 Assembling 150000 18750 8 Inspection 150000 30000 5 825000 ABC system Cost driver Job Total cost Machining 5 78 390 Material handling 15 22 330 Assembling 8 60 480 Inspection 5 42 210 Total overheads 1410 2 Direct material 42000 Manufacturing overheads 1410 Total manufacturing cost 43410 3 Total manufacturing cost 43410 Profit margin 13023 (43410*30%) Bid proposal 56433

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