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

First, we need to calculate the predetermined overhead rate (POHR) for the maintenance and inspection categories:
Maintenance overhead rate = $35,000 / 50,000 labor hours = $0.70 per labor hour
Inspection overhead rate = $15,000 / 1,500 inspections = $10 per inspection
Next, we need to calculate the estimated overhead cost for the potential job:
Estimated maintenance overhead = 100 labor hours * $0.70 per labor hour = $70
Estimated inspection overhead = 10 inspections * $10 per inspection = $100
Total estimated overhead = $70 + $100 = $170
Finally, we can calculate the total cost of the potential job:
Direct materials + Direct labor + Overhead = $1,000 + $1,500 + $170 = $2,670
Therefore, the total cost of the potential job using direct labor hours to assign overhead would be $2,670, which is closest to choice C.

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