Question

Lawson Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows: Maintenance $180,000 Materials handling 27,000 Setups 24,000 Inspection 90,000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 20,000 direct labor 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: Direct materials $3,000 Direct labor (600 hours) $9,000 Number of material moves 4 Number of inspections 6 Number of setups 8 Number of machine hours 80 In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor 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: Machine hours 5,000 Material moves 600 Setups 200 Quality inspections 1,000

If material moves are used to assign material handling costs, the amount of material handling costs allocated to the proposed job would be

a.$147.
b.$170.
c.$ 60.
d.$180.

Answer 1

Answer:

The correct answer is D.

Explanation:

Giving the following information:

Materials handling $27,000

Direct materials $3,000 Direct labor (600 hours) $9,000 Number of material moves 4

Expected activity for the four activity drivers that would be used are: Machine hours 5,000 Material moves 600 Setups 200 Quality inspections 1,000

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 27,000/600= $45 per material move

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 45*4= $180