S ACC1003/May 2018 uestion 2 SECTION B (Answer TWO questions) Bella Napoli produces customised pizza for large-scale customers and has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows: Maintenance Materials handling 140,000 60,000 50,000 100,000 Setups Inspection Currently, overhead is applied using a predetermined overhead rate based on budgeted direct labour hours. For next year, 50,000 direct labour hours are budgeted Bella Napoli has been asked to submit a bid for a proposed job for a new customer. The plant manager thinks that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30 per cent. Estimates for the proposed job are as follows: Direct materials Direct labour (750 hours) x Number of materials moves Number of inspections Number of setups 5,000 7,500 8 5 3 300 Number of machine hours In the past, full manufacturing cost has been calculated by allocating overhead using a traditional volume-based cost driver system on direct labour hours. 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 as follows: Machine hours Material moves Setups Quality inspections Requirement 16,000 4,000 2,000 8,000 a) Determine the amount of overhead that would be allocated to the proposed job if direct labour hours were used as the traditional volume-based cost driver. What is the total cost of the proposed job? 4 Marks b) Determine the company's bid, if this is based upon full manufacturing cost plus 30 per cent. 3 Marks Page 8 of 13 Cont'd... ACC1003/May 2018 Determine the amount of overhead that would be applied to the proposed job if activity- based costing were used. What is the total cost of the proposed job? 15 Marks d) Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 per cent. 3 Marks e) Which product costing method produces the more competitive bid and why? Briefly discuss your reasons. 5 Marks Total 30 Marks