Figure 11-4
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}
\text { Maintenance } & £ 120,000 \
\text { Inspection } & £ 200,000
\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{ll}
\text { Direct materials } & £ 1,500 \
\text { Direct labour } & £ 5,000 \
\text { Machine hours } & 400 \
\text { Number of inspections } & 6 \
\text { Direct labour hours } & 750
\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.
-Refer to Figure 11-4 above. Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be
A)£9,230.
B)£8,180.
C)£2,250.
D)£1,680.

Question

Quizplus · Accepted Answer

To calculate the total cost using activity-based costing (ABC), we first determine the overhead rates for each activity. For maintenance, the cost driver is machine hours, and for inspection, the cost driver is the number of inspections.Maintenance overhead rate = £120,000 / 40,000 machine hours = £3 per machine hour.Inspection overhead rate = £200,000 / 2,500 inspections = £80 per inspection.For the proposed job:Maintenance cost = 400 machine hours * £3/machine hour = £1,200.Inspection cost = 6 inspections * £80/inspection = £480.Total overhead cost = £1,200 (maintenance) + £480 (inspection) = £1,680.Adding direct materials (£1,500) and direct labour (£5,000) to the total overhead cost (£1,680):Total cost = £1,500 + £5,000 + £1,680 = £8,180.

Figure 11-4 the Overdale Plant Has Two Categories of Overhead Maintenance £120,000 Inspection £200,000\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array} Maintenance Inspection ​£120,000£200,000​

Figure 11-4
the Overdale Plant Has Two Categories of Overhead $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$