Spear Manufacturing Has Four Categories of Overhead Currently,overhead Is Applied Using a Predetermined Overhead Rate Based Upon

question 141

Multiple Choice

Spear Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:
$\begin{array}{lr}\text { Maintenance } & \$ 180,000 \\\text { Materials handling } & 27,000 \\\text { Setups } & 24,000 \\\text { Inspection } & 90,000\end{array}$
Currently,overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours; 20,000 direct labour hours are budgeted for next year.
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 percent.Estimates for the proposed job are as follows:
$\begin{array}{lr}\text { Direct materials } & \$ 3,000 \\\text { Direct labour ( } 600 \text { hours) } & \$ 9,000 \\\text { Number of material moves } & 4 \\\text { Number of inspections } & 6 \\\text { Number of setups } & 80 \\\text { Number of machine hours } & 8\end{array}$
In the past,full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver,direct labour hours.The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers.Expected activity for the four activity drivers that would be used are:
$\begin{array}{llr} \text {Machine hours } &5,000\\ \text { Material moves } &600\\ \text { Setups } &200\\ \text { Quality inspections } &1,000\end{array}$

-Refer to the figure.If the number of inspections is used to assign inspection costs,what would be the amount of inspection costs allocated to the proposed job?

• A)$540
• B)$900
• C)$990
• D)$2,700

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