Jefferson Blush Manufacturing Inc. currently uses a plantwide overhead rate based on total direct labour hours to allocate its manufacturing overhead to individual jobs. However, the accountant is considering refining the company's costing system by using activity based costing (ABC).

The accountant has identified three manufacturing activities that incur manufacturing overhead costs: Materials Handling, Maintenance, and Inspection.

The budgeted activity costs for the upcoming year and their allocation bases are as follows:

	Costs	Allocation Base	Expected Activity
Materials handling	$360,000	Material moves	18,000 moves
Maintenance	$550,000	Machine hours	55,000 MH
Inspection	$30,000	Inspections	10,000 inspections
Total	$940,000

If the company uses the plantwide rate the accountant expects direct labour hours will be 80,000 hours.

The company has been asked to submit a bid on a proposed job. The accountant would like to calculate the cost of this job using both the traditional costing system and the ABC system to help him determine if refining the costing system would benefit the company.

The details for the proposed job are as follows:

Direct materials	$55,000
Direct labour	$45,000
Number of direct labour hours	4,500
Number of material moves	50
Number of inspections	180
Number of machine hours	3,000

Use the above information to answer the following questions:

Part 1:

What is the plantwide overhead rate per direct labour hour if the company continues to use the traditional costing system?

If the company continues to use the plantwide overhead rate, how much manufacturing overhead would be allocated to this job?

Part 2:

If the company decides, instead, to use activity-based costing, what would the cost allocation rate be for Materials Handling?

If the company decides, instead, to use activity-based costing, what would the cost allocation rate be for Maintenance?

If the company decides, instead, to use activity-based costing, , what would the cost allocation rate be for Inspections?

If the company adopts activity-based costing system, how much manufacturing overhead would be allocated to this job in total?

Part 3:

Based on your answers to Part 1 and Part 2, does the plantwide overhead rate overcost or undercost this job?

Enter the number 1 for overcost.

Enter the number 2 for undercost.

Enter the number 3 if there is no difference in the costing of the job.