Question

Madeleine, Inc. has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:Maintenance$800,000Inspection400,000The following data have been assembled for use in developing a bid for a proposed job:Direct materials$6,000Direct labor$16,000Machine-hours400Number of inspections4Direct labor-hours800The practical capacity of machine-hours for all jobs during the year is 25,000, and for inspections is 800. These are the cost drivers for maintenance and inspection costs, respectively.Using the appropriate cost drivers, the total cost of the potential job is:

Answer 1

Answer:

The Total cost for potential job is $36,800.

Explanation:

The potential cost is calculated as follows:

Direct Material               $6,000

Direct Labour                 $16,000

Total Prime Costs           $22,000

Overheads Cost:

(W-1) Maintenance:         $12,800

(W-2) Inspection:              $2,000

Total Job cost                  $36,800

Workings:

(W-1) Maintenance Overhead Rate is based on number of machine hours:

Formula: Total Maintenance cost/Total machine Hours

$800,000/25,000  = $32 per machine hours.

So the Maintenance cost for project is: 400 Machine hours × $32 = $ 12,800.

(W-2) Inspection Overhead Rate is based on inspection hours:

Formula: Total Inspection Cost/Total Inspection Hours

$400,000/800  = $500 per inspection hour

So the inspection cost for project is: 4 inspection hours × $500= $2,000

Answer 2

Answer:

total potential cost: 36,800

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

We divide the expense overhead over the cost driver.

Maintenance

800,000 / 25,000 = 32

Inspection

400,000 / 800 = 500

Applied overhead:

400 machine hours x $32 = $12,800

4 inspections x 500 = $2000

Total $14,800

The cost will be the three main component:

material + labor + overhead

Then, we have 6,000 materials plus 16,000 labor

total potential cost: 36,800