Purchase Solution

# Milton Manufacturing Overhead Activity Based Costing

Not what you're looking for?

Milton Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows:
Maintenance \$70,000
Materials handling 30,000
Setups 25,000
Inspection 50,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 50,000 direct labor hours are budgeted for next year.

The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually, bids are based upon full manufacturing cost plus 30 percent.
Estimates for the proposed job are as follows:

Direct materials \$2,500
Direct labor (750 hours) \$3,750
Number of machine hours 300
Number of material moves 8
Number of setups 3
Number of inspections 5

In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based activity driver, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers.

Expected activity for the four activity drivers that would be used are:

Machine hours 16,000
Material moves 4,000
Setups 2,000
Quality inspections 8,000

Required:
a.Determine the amount of overhead that would be allocated to the proposed job if direct labor hours are used as the volume-based activity driver.
b.Determine the total cost of the proposed job.
c.Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent.
d.Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used.
e.Determine the total cost of the proposed job if activity-based costing is used.
f.Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.
g.Which product costing method produces the more competitive bid? Explain (in detail) the differences between how activity based costing systems can provide more accurate product costs than traditional cost systems.

##### Solution Summary

Your tutor creates a schedule to show you how to analyze activity based versus traditional costing methods and then walks you through the computations (click in cells to see calculations). A paragraph discusses why the bids differ under the two methods.

##### Solution Preview

Required:
a.Determine the amount of overhead that would be allocated to the proposed job if direct labor hours are used as the volume-based activity driver. \$2,625 (see excel attached)

b.Determine the total cost of the proposed job. \$8,875 (see excel attached)

c.Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent. \$11,537.50 (see excel attached)

d.Determine the amount of overhead that would be applied ...

Solution provided by:
###### Education
• BSc, University of Virginia
• MSc, University of Virginia
• PhD, Georgia State University
###### Recent Feedback
• "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
• "Thank, this is more clear to me now."
• "Awesome job! "
• "ty"
• "Great Analysis, thank you so much"

##### SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

##### IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

##### Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

##### Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.