Figure 4-13 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:
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job:
Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Refer to Figure 4-13. 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

Figure 4-13 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:
 The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The following data have been assembled for use in developing a bid for a proposed job:
 Total expected machine hours for all jobs during the year is 25,000, and the total expected number of inspections is 1,500.
Refer to Figure 4-13. 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.

Quizplus · Accepted Answer

To calculate the overhead rate using direct labor hours, we need to find the total overhead costs and divide it by the total direct labor hours.

Total overhead costs = Maintenance costs + Inspection costs = $3,000 + $1,500 = $4,500

Overhead rate = Total overhead costs / Expected direct labor hours 
Overhead rate = $4,500 / 50,000 direct labor hours = $0.09 per direct labor hour

Now, we need to use this overhead rate to calculate the overhead cost for the potential job.

Expected direct labor hours for the potential job = 40 hours 
Overhead cost for the potential job = Expected direct labor hours x Overhead rate 
Overhead cost for the potential job = 40 hours x $0.09 per direct labor hour = $3.60

Therefore, the total cost of the potential job would be: 
Total cost = Direct materials + Direct labor + Overhead 
Total cost = $500 + $600 + $3.60 = $1,103.60

Thus, the best choice is (C) $4,500.

Figure 4-13 the Molotov Plant of Kaboom Industries Has Two