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

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

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.

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

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NAME ________________________________________________________ Chapter 6 CASE
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
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.
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. Which product costing method produces the more competitive bid? Why?

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