Overhead Application, Activity-Based Costing, Bid Prices

Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is:

Purchasing	$35,000
Setups	40,000
Engineering	45,000
Other	40,000

Previously, Sanjay Bhatt, Firenza Company's controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours.

Sanjay has been asked to prepare bids for two jobs with the following information:

	Job 1	Job 2
Direct materials	$4,500	$9,380
Direct labor	$1,200	$2,100
Number of purchase orders	15	20
Number of setups	3	4
Number of engineering hours	45	10
Number of machine hours	200	200

The typical bid price includes a 40 percent markup over full manufacturing cost.

1. Calculate a plantwide rate for Firenza Company based on machine hours. $ per machine hour

What is the bid price of each job using this rate?

2. Calculate activity rates for the four overhead activities

What is the bid price of each job using these rates?