The Molotov plant of Kaboom Industries has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
$\begin{array}{lr}
\text { Maintenance } & \$ 50,000 \
\text { Inspection } & 75,000
\end{array}$
The plant currently applies overhead using direct labor hours and expected cap acity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposedjob:
$\begin{array}{lr}
\text { Direct materials } & \$ 500 \
\text { Direct labor } & \$ 2,000 \
\text { Machine hours } & 500 \
\text { Number of inspections } & 4 \
\text { Direct labor hours } & 800
\end{array}$
Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Using direct labor hours to assign overhead, the total cost of the potential job would be
A)$2,000.
B)$4,000.
C)$4,500.
D)$5,500.

Question

Quizplus · Accepted Answer

The total overhead costs are $50,000 (maintenance) + $75,000 (inspection) = $125,000. The plant applies overhead using direct labor hours, with an expected capacity of 50,000 direct labor hours. Therefore, the overhead rate per direct labor hour is $125,000 / 50,000 hours = $2.50 per direct labor hour. For the proposed job, with 800 direct labor hours, the overhead cost would be 800 hours * $2.50 = $2,000. Adding this to the direct materials ($500) and direct labor ($2,000) gives a total cost of $500 + $2,000 + $2,000 = $4,500.

The Molotov Plant of Kaboom Industries Has Two Categories of Overhead