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Determine the company''s bid
Course:- Managerial Accounting
Reference No.:- EM13388

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Assignment Help >> Managerial Accounting

King Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:

 Maintenance \$70,000 Materials handling 30,000 Setups 25,000 Inspection 50,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 50,000 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 30 percent.

Estimates for the proposed job are as follows:

 Direct materials \$2,500 Direct labor (750 hours) \$3,750 Number of machine hours 300 Number of material moves 8 Number of setups 3 Number of inspections 5

In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based driver e.g. 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:

 Machine hours 16,000 Material moves 4,000 Setups 2,000 Quality inspections 8,000

Required:

1. Determine the company's bid if direct labor hours are used as the volume-based driver and the bid is based upon full manufacturing cost plus 30 percent.
2. Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.
3. Which product costing method produces the more competitive bid? And why?

Problem :- 2

The Knapp Company needs to predict the labor cost in producing small carrot patch dolls. The following production information is available:

 Year Dolls Produced Labor Hours Labor Dollars 2005 1,150 850 \$17,000 2006 1,600 975 23,400 2007 1,100 800 25,600 2008 2,100 1,150 36,800 2009 1,500 950 34,200 2010 1,300 875 35,000

The technology has not changed since 2005. Wage rates have steadily increased since 2005; however, management expects no further wage increases in 2011.

Required:

1. Select the appropriate independent variable for predicting labor cost. Explain the reason for your selection.
2. Develop an equation to predict for 2011 the labor cost of producing carrot patch dolls. Use the high-low method.
3. Estimate the labor cost of producing 3000 carrot patch dolls for 2011 if 3,000 dolls are expected to produce.

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