Baker Manufacturing Has Four Categories of Overhead

question 105

Essay

Baker Manufacturing has four categories of overhead. The four categories and the 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. For next year, 50,000 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 30 percent.
Estimates for the proposed job are as follows:
In the past, full manufacturing cost has been calculated by allocating overhead using a traditional volume-based cost driver system--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:
Required:

a.
Determine the amount of overhead that would be allocated to the proposed job if direct labour hours are used as the traditional volume-based cost driver.
Determine the total cost 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 job if activity-based costing is used.
Determine the total cost 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?

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Definitions:

Organizational Resources

Refers to the assets, including human, financial, and physical, that an organization can utilize to achieve its objectives.

Customer Group

A specific segment of the market targeted by a company's products, services, or marketing efforts.

Strategic Leadership

Leadership that focuses on long-term success through visioning, planning, and fostering an environment conducive to adaptation, innovation, and growth.

Guardian of Trade-offs

A role or principle involving the management and balance of competing interests or resources in decision-making processes.