The Jewell Plant Has Two Categories of Overhead: Maintenance and Inspection

Essay

The Jewell plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{lr}\text { Maintenance } & £ 360,000 \\\text { Inspection } & 750,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 100,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus a 20 per cent markup. $\begin{array}{lr}\text { Direct materials } & £ 2,100 \\\text { Direct labour } & £ 5,625 \\\text { Machine hours } & 450 \\\text { Number of inspections } & 4 \\\text { Direct labour hours } & 550\end{array}$ Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000.
a.Compute the total cost of the potential job using direct labour hours to assign overhead.Determine the bid price for the potential job.
b.Compute the total cost of the job using activity-based costing and the appropriate activity drivers.Determine the bid price if activity-based costing is used.
c.Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflects the actual cost of the job.