Figure 4-14
Lawson Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 20,000 direct labor hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows:
In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are:

-Refer to Figure 4-14. If the number of inspections is used to assign inspection costs, the amount of inspection costs allocated to the proposed job would be SUPPORTING CALCULATIONS: $90,000/1,000 = $90 $90 × 6 = $540
A) $2,700.
B) $ 990.
C) $ 900.
D) $ 540.

Question

Figure 4-14
Lawson Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:
  Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 20,000 direct labor hours are budgeted for next year.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 15 percent. Estimates for the proposed job are as follows:
  In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers. Expected activity for the four activity drivers that would be used are:
 
-Refer to Figure 4-14. If the number of inspections is used to assign inspection costs, the amount of inspection costs allocated to the proposed job would be SUPPORTING CALCULATIONS: $90,000/1,000 = $90 $90 × 6 = $540
A) $2,700. 
B) $ 990. 
C) $ 900. 
D) $ 540.

Quizplus · Accepted Answer

To allocate inspection costs to the proposed job, we need to use the activity-based costing method, where the cost pool for inspections is allocated based on the number of inspections. From the given information, the total inspection cost is $90,000, and the expected number of inspections for the proposed job is 6. Therefore, the amount of inspection costs allocated to the proposed job would be $90 × 6 = $540. Hence, the correct answer is option D, $540.

Figure 4-14 Lawson Manufacturing Has Four Categories of Overhead. the Four Categories