Question

Lancelot Manufacturing is a small textile manufacturer using machine-hours as the single indirectcost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Case High School band jacket job.
Company Case High School Job
Direct materials $40,000 $2,000
Direct labor $10,000 $400
Manufacturing overhead costs $45,000
Machine-hours 100,000 mh 900 mh



What is the bid price for the Case High School job if the company uses a 40% markup of total manufacturing costs?
A) $3,360
B) $1,122
C) $960
D) $3,927

Answer 1

Answer:

D) = $3,927

Explanation:

The cost of a product is the addition of direct material cost + direct labour cost + manufacturing overheads

Overhead absorption rate = Budgeted Overheads/ Budgeted machine hours

= $45,000/100,000 hours

= $0.45

Product cost = 2,000 + 400 + (0.45× 900)

                     = $2,805

Bid price = Product + ( mark up)

            = 2,805 + (40% × 2,805)

            = $3,927

Bid price   = $3,927