Figure 3-6
Ray Manufacturing Has Four Categories of Overhead Currently, Overhead Is Applied Using a Predetermined Overhead Rate Based

question 31

Multiple Choice

Figure 3-6
Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $$\begin{array} { l l } \text { Maintenance } & £ 510,000 \\\text { Materials handling } & 250,000 \\\text { Setups } & 60,000 \\\text { Inspection } & 210,000\end{array}$$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent.
Estimates for the proposed job are as follows: $$\begin{array} { l l } \text { Direct materials } & £ 30,000 \\\text { Direct labour (8,000 hours) } & £ 24,000 \\\text { Number of materials moves } & 100 \\\text { Number of inspections } & 120 \\\text { Number of setups } & 24 \\\text { Number of machine hours } & 4,000\end{array}$$ The plant 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: $\begin{array}{ll}\text { Machine hours } & 60,000 \\\text { Material moves } & 20,000 \\\text { Setups } & 3,000 \\\text { Quality inspections } & 12,000\end{array}$
-Refer to Figure 3-6. If Ray Manufacturing used activity-based cost drivers to assign overhead and the company's bid is full cost plus 10 per cent, the company's bid would be

• A)£108,804.
• B)£105,413.
• C)£103,235.
• D)£101,013.

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