Reference no: EM132000502

Question - Bailey Corporation has four categories of overhead. The expected overhead costs for each category for next year are as follows:

Maintenance $420,000

Materials handling 180,000

Setups 150,000

Inspection 300,000

The company has been asked to submit a bid for a proposed job. The plant manager believes that obtaining this job would result in new business in future years. Bids are usually based upon full manufacturing cost plus 30 percent. Estimates for the proposed job are as follows:

Direct materials $10,000

Direct labor (750) hours $15,000

Number of material moves 8

Number of inspections 5

Number of setups 3

Number of machine hours 300

Expected activity for the four activity-based cost drivers that would be used is:

Machine hours 20,000

Material moves 4,000

Setups 200

Quality inspections 8,000

Required:

a. Determine the amount of overhead that would be allocated to the proposed job if 40,000 direct labor-hours are used as the volume-based cost driver. Determine the total costs of the proposed job. Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent. (Round amounts to 2 decimal places.)

b. Determine the amount of overhead that would be applied to the proposed project if activity based costing is used. Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing costs plus 30 percent. (Round amounts to 2 decimal places.)

c. Which product costing method produces the more competitive bid?