Determine the total cost and product costing method, Cost Accounting

Question

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

Maintenance

$140,000

Materials handling

60,000

Set-ups

50,000

Inspection

100,000

Currently, overheads are applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 50,000 direct labour hours are budgeted.

The company has been asked to submit a bid for a proposed job. The factory manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30%.

Estimates for the proposed job are as follows:

Direct materials

$5,000

Direct labour (750 hours)

$7,500

Number of materials moves

8

Number of inspections

5

Number of set-ups

3

Number of machine hours

300

In the past, full manufacturing cost has been calculated by allocating overheads using a volume-based cost driver - direct labour hours. The factory manager has heard of a new way of applying overhead that uses cost pools and cost drivers.

Expected activity for the four activity-based cost drivers that would be used are as follows:

Machine hours

16,000

Material moves

4,000

Set-ups

2,000

Quality inspections

8,000

(A) (i) Determine the amount of overheads that would be allocated to the proposed job if direct labour hours are used as the volume-based cost driver.

(ii) Determine the total cost of the proposed job.

(iii)) Determine the company's bid if the bid is based upon full manufacturing cost plus 30%.

(B) (i) Determine the amount of overheads that would be applied to the proposed job if activity-based costing is used.

(ii) Determine the total cost of the proposed job if activity-based costing is used.

(iii) Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30%.

(C) Which product costing method produces the more competitive bid? Provide a logical explanation for the difference between the two bid prices.

Posted Date: 2/18/2013 4:48:19 AM | Location : United States







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