Calculate Overhead Expenses And Total Cost For A Proposed Job

Question

Kelley Corporation has four categories of overhead. The expected overhead costs for each category for next year are as follows:

Maintenance

$280,000

Materials handling

120,000

Setups

100,000

Inspection

200,000

The company has been asked to submit a bid for a proposed job. The plant manager believes that obtaining this job would result in new business in future years. Bids are usually based upon full manufacturing cost plus 30 percent. Estimates for the proposed job are as follows:

Direct materials

$10,000

Direct labor (750 hours)

$15,000

Number of material moves

8

Number of inspections

5

Number of setups

3

Number of machine-hours

300

Expected activity for the four activity-based cost drivers that would be used are:

Machine-hours

20,000

Material moves

4,000

Setups

200

Quality inspections

8,000

a. Determine the amount of overhead that would be allocated to the proposed job if 40,000 direct labor-hours are used as the volume-based cost driver. Determine the total costs of the proposed job. Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent.

b. Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used. Determine the total costs of the proposed job if activity-based costing is used. Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.

c. If you were the manager responsible for preparing/approving the bid to be made, which method of costing (traditional or activity-based) is apt to result in the “best” bid? Why?

 

Summary

The question belongs to Accounting and it discusses about calculation of overhead expenses, total cost and determine the best method of costing of a proposed job.

Total Word Count 296

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