Reference no: EM132586078

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

Maintenance £120,000

Materials handling £18,000

Setups £16,000

Inspection £60,000

The company has been asked to determine the full cost for a proposed job. Estimates for the proposed job are as follows:

Direct materials £2,000

Direct labor (600 hours) £6,000

As the information provided above, now, the business manager is considering using activity-based costing, and the expected activity for the four activity-based cost drivers that would be used by whole business are as follows:

Machine hours 5,000

Material moves 600

Setups 200

Quality inspections 1,000

And the estimates for the proposed job are as follows:

Direct materials £2,000

Direct labor (600 hours) £6,000

Number of machine hours 80

Number of materials moves 4

Number of setups 8

Number of inspections 6

Required:

Question a. Currently, 20,000 direct labor hours are budgeted for whole business next year. Please calculate the full cost for the job if Wheat Manufacturing uses the direct labor hours as the basis to absorb overheads.

Question b. Calculate the full cost for the job if Wheat Manufacturing uses activity-based method to allocate overheads.

Question c. How does activity-based costing (ABC) differ from the traditional approach? Please comment on the underlying difference between their philosophies and the key concern to choose appropriate approach in practice.