Problem-
Kelley Corporation has four categories of overhead. The expected overhead costs for each category for next year are as follows:
|
Maintenance
|
$280,000
|
|
Materials handling
|
120,000
|
|
Setups
|
100,000
|
|
Inspection
|
200,000
|
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 are:
|
Machine-hours
|
20,000
|
|
Material moves
|
4,000
|
|
Setups
|
200
|
|
Quality inspections
|
8,000
|
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.
b. Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used. Determine the total costs of the proposed job 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 cost plus 30 percent.
c. If you were the manager responsible for preparing/approving the bid to be made, which method of costing (traditional or activity-based) is apt to result in the "best" bid? Why?
Additional information-
The problem relates to Accounting and it discusses about calculation of overhead expenses, total cost and find the best method of costing of a proposed job.