Question 4 Brown Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed below: N$ Maintenance 200 000 Materials handling 32 000 Setups 100 000 Inspection 120 000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 50 000 direct labour hours are budgeted. The company has accepted a new job and the sales manager wanted to have a cost estimate. The production department provided the following information for the new job: Direct materials N$6 000 Direct labour (1 000 hours) N$10 000 Machine hours 500 Number of material moves 12 Number of setups 2 Number of inspections 10 In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver (direct labour hours). With the information supplied by the production department, the bookkeeper requested you to assist them with the introduction of an activity based costing system. You collected the following expected activity for the four activity based cost drivers: Machine hours 20 000 Material moves 1 600 Setups 2 500 Quality inspections 4 000 Required: 4.1 Determine the amount of overhead that would be allocated to the proposed job if a plant wide rate with direct labours is used. 4 4.2 Determine the total cost of the proposed job. 3 4.3 Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used. 4 4.4 Determine the total cost of the proposed job if activity based costing is used. 7