The Oakland plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
The plant currently applies overhead using direct labour hours and expected capacity of 100,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus 20 percent markup.
Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000.
Required:

a.
Compute the total cost of the potential job using direct labour hours to assign overhead.
Also determine the bid price for the potential job.
b.
Compute the total cost of the job using activity-based costing and the appropriate cost drivers.
Also determine the bid price if activity-based costing is used.
c.
Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflects the actual cost of the job.

Question

The Oakland plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
The plant currently applies overhead using direct labour hours and expected capacity of 100,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus 20 percent markup.
  Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000.
Required:
  
a.
Compute the total cost of the potential job using direct labour hours to assign overhead.
Also determine the bid price for the potential job.
b.
Compute the total cost of the job using activity-based costing and the appropriate cost drivers.
Also determine the bid price if activity-based costing is used.
c.
Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflects the actual cost of the job.

Quizplus · Accepted Answer

The Answer of The Oakland plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:
The plant currently applies overhead using direct labour hours and expected capacity of 100,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus 20 percent markup.
  Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000.
Required:
  
a.
Compute the total cost of the potential job using direct labour hours to assign overhead.
Also determine the bid price for the potential job.
b.
Compute the total cost of the job using activity-based costing and the appropriate cost drivers.
Also determine the bid price if activity-based costing is used.
c.
Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflects the actual cost of the job.

The Oakland Plant Has Two Categories of Overhead: Maintenance and Inspection