Case #1 Nova Company currently applies overhead to jobs using a predetermined overhead rate based on budgeted direct labour hours. For 2020, the company budgeted 30,560 direct labour hours and the following overhead costs: Costs Cost driver Expected activity Setups $600,000 Number of setups 2,000 Materials handing S132.000 Number of material moves 6,000 Inspection $32,000 Number of inspection hours 8,000 Total cost $764,000 During the year, the company decided to bid on a job. According to company policy, the bid amount is determined by adding a 30% to the full product cost. To determine the bid price, the company's accountant gathered the following estimates for the job: Direct materials cost $1,330 Direct labour cost S1.320 Number of direct labour hours 92 Number of setups 10 Number of material moves Number of inspection hours Required (A) What is the predetermined overhead rate? (B) Using the predetermined overhead rate computed in (A), what is the bid price of the job? 28 Required (A) What is the predetermined overhead rate? (B) Using the predetermined overhead rate computed in (A), what is the bid price of the job? (C) Ignoring your calculations in (A) and (B), assume that Nova Company decided to implement an activity-based costing system. Compute the activity-based costing rate for each the three activities identified above. (D) What is bid price of the job using activity-based costing (ABC)? (E) Why do the bid prices differ? (F) Review the bid prices and discuss problems you notice with Nova Company using the predetermined plantwide rate for assigning overhead and forming the basis of job bids? 1