Assume that a company has two categories of overhead: machine operating costs and materials handling. The costs expected for these categories for the coming year are as follows:

The plant currently applies overhead using machine hours and expected actual capacity. Ex¬
pected actual capacity is 50,000 machine hours. Charlene Wells, the plant manager, has been asked to submit a bid and has assembled the following data on the proposed job:

Charlene has been told that many competitors use an activity-based approach to assign over¬
head to jobs. Before submitting her bid, she wants to assess the effects of this alternative ap¬
proach. She estimates that 3,000 material moves will be performed plantwide next year.
Required:
1. Compute the total cost of the potential job using machine hours to assign overhead. As¬
suming that the bid price is full manufacturing cost plus 25%, what would be Charlene's bid?
2. Compute the total cost of the job using the number of material moves to assign material¬
handling costs and machine hours to assign machine operating costs. Assuming a bid price of full manufacturing cost plus 25%, what is Charlene's bid using this approach?
3. Which approach do you think best reflects the actual cost of the job? Explain.

Transcribed Image Text:

Machine operating costs Materials handling Total $220,000 180,000 $400,000