Forest Queen Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:

Maintenance $70,000

Materials handling 30,000

Setups 25,000

Inspection 50,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 50,000 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 30 percent. Estimates for the proposed job are as follows:

Direct materials $2,500

Direct labor (750 hours) $3,750

Number of machine hours 300

Number of material moves 8

Number of setups 3

Number of inspections 5

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 16,000

Material moves 4,000

Setups 2,000

Quality inspections 8,000

Required:

a. Determine the amount of overhead that would be allocated to the proposed job if direct labor hours are used as the volume-based activity driver.

Determine the total cost of the proposed job.

Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent.

b. Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used.

Determine the total cost of the proposed job if activity-based costing is used.

Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.

c. Which product costing method produces the more competitive bid?