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 | $4,600 | $9,340 |
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.
Required:
Note: When required, round your answers to the nearest cent.
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?
Bid Price | |
Job 1 | $ |
Job 2 | $ |
2. Calculate activity rates for the four overhead activities.
Purchasing rate | $ | per purchase order |
Setup cost rate | $ | per setup |
Engineering rate | $ | per engineering hour |
Other cost rate | $ | per machine hour |
What is the bid price of each job using these rates?
Bid Price | |
Job 1 | $ |
Job 2 | $ |
3. Which bids are more accurate?
Answer with working notes is given below
Overhead Application, Activity-Based Costing, Bid Prices Firenza Company manufactures specialty tools to customer order. Budgeted overhead...
Overhead Application, Activity-Based Costing, Bid Prices Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Purchasing $40,000 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 Application, Activity-Based Costing, Bid Prices Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Purchasing $40,000 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 Application, Activity-Based Costing, Bid Prices Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Purchasing $40,000 Setups 37,500 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...
Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: za Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Purchasing $40,000 Setups 40,000 Engineering 50,000 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...
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