Figure 10-1
Wheat Manufacturing Has Four Categories of Overhead Currently, Overhead Is Applied Using a Predetermined Overhead Rate Based

question 18

Multiple Choice

Figure 10-1
Wheat Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: $\begin{array}{lr}\text { Maintenance } & £ 120,000 \\\text { Materials handling } & 18,000 \\\text { Setups } & 16,000 \\\text { Inspection } & 60,000\end{array}$ Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 20,000 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 15 per cent.
Estimates for the proposed job are as follows: $\begin{array}{lr}\text { Direct materials } & £ 2,000 \\\text { Direct labour (600 hours) } & £ 6,000 \\\text { Number of materials moves } & 4 \\\text { Number of inspections } & 6 \\\text { Number of setups } & 8 \\\text { Number of machine hours } & 80\end{array}$ In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver--direct labour hours. 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: $\begin{array}{lr}\text { Machine hours } & 5,000 \\\text { Material moves } & 600 \\\text { Setups } & 200 \\\text { Quality inspections } & 1,000\end{array}$
-Refer to Figure 10-1. If Wheat Manufacturing used activity-based cost drivers to assign overhead and the company's bid is full cost plus 15 per cent, the company's bid would be

• A)£12,696.00
• B)£13,965.60
• C)£10,120.00
• D)£9,936.00

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