Spear Manufacturing Has Four Categories of Overhead

question 54

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: 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:
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:
If the number of inspections is used to assign inspection costs, the amount of inspection costs allocated to the proposed job would be

• A) £2,700.
• B) £990.
• C) £900.
• D) £540.

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Definitions:

Outstanding Balance

The outstanding balance is the total amount still owed on a loan or credit line, including any interest or fees that have accrued.

Credit Period

The time period granted to a customer for paying an invoice.

Stock Price

The current market price at which a share of a company's stock can be bought or sold.

Discount Rate

In finance, it is the interest rate used to determine the present value of future cash flows, or the rate at which a bank lends to other banks or financial institutions.