Company LSD LTD has 4 types of overhead . The four categories and expected costs for each category for next year are listed below Company LSD LTD

Activity cost Setups cost $150,000 Inspection cost $90,000 Maintenance cost $120,000 Material Handling cost $ 82,000 Actual overhead Cost $30,000

Estimates for the proposed job [Job #23] are as follows Direct Materials $6,000 DL (1000 hours) $10,000 Machine Hours [maintenance cost] 500 # of material moves 12 # of setups 5 # of inspections 10 Units produced 240

The company has been asked to submit a bid for a proposed job. The plant manager thinks getting this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30%.

In the past , full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH]. 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 :

Cost Drivers Machine Hours 15,000 Material Moves 4,600 Setups 3,500 Quality Inspections 5,000 Required : Part 1 1. Calculate the predetermined rates using the Functional based costing . 2. Determine the amount of overhead that would be applied to the proposed project if Functional based costing method is used 3. Determine the total cost of the proposed job using ABC

4. Calculate the unit cost using FBC 5. What bid price is the company going to use according to its FBC policy? Part 2

1 Calculate the predetermined rates using the activity based costing .

2 Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used 3 Determine the total cost of the proposed job using ABC .

4 Calculate the unit cost using ABC.

5 What bid price is the company going to use according to its policy? 6 Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion?

Question 3. Theory Questions A. Differentiate between Functional based Costing and Activity based costing B. What are the weaknesses of Functional based costing ? C. Give two examples of unit level drivers and two examples of non-unit level drivers and give a brief explanation for each. D. Mention three assumptions of CVP analysis E. Explain what the following measures indicate to the managers: i. Margin of Satety ii. Degree of Operating Leverage