Question

The Lislevand plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance	$121645
Inspection	$184402

The plant’s expected capacity is 88283 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job.

Direct materials	$?
Direct labour	$5650
Machine hours	410
Number of inspections	9
Direct labour hours	749

Total expected machine hours for all jobs during the year is 38065 and the total expected number of inspections is 2539.

Using activity-based costing and the appropriate cost drivers, if the total cost of the proposed job is $11382 what is the direct materials used in the job?

Select one:

a. $3768

b. $9418

c. $5732

d. $3135

Answer 1

Correct answer-----------a. $3768

Working

	Job
Direct material(Balancing figure)	$              3,768.11
Direct labor	$              5,650.00
Overheads	$              1,963.89
Total Cost	$            11,382.00

.

Cost assigned to Job
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Maintenance	$             3.20	410.00	$           1,310.24
Inspection	$           72.63	9.00	$              653.65
Total Overheads assigned			$           1,963.89

.

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Maintenance	Number of machine hour	$     1,21,645.00	38065	$               3.20	Per machine hour
Inspection	Number of inspection	$     1,84,402.00	2539	$             72.63	Per inspection