Overhead Application,Activity-Based Costing, Bid Prices
Firenza Companymanufactures specialty tools to customer order. Budgeted overheadfor the coming year is:
| Purchasing | $35,000 |
| Setups | 40,000 |
| Engineering | 45,000 |
| Other | 40,000 |
Previously, SanjayBhatt, Firenza Company's controller, had applied overhead on thebasis of machine hours. Expected machine hours for the coming yearare 50,000. Sanjay has been reading about activity-based costing,and he wonders whether or not it might offer some advantages to hiscompany. He decided that appropriate drivers for overheadactivities are purchase orders for purchasing, number of setups forsetup cost, engineering hours for engineering cost, and machinehours for other. Budgeted amounts for these drivers are 5,000purchase orders, 500 setups, and 2,500 engineering hours.
Sanjay has been askedto prepare bids for two jobs with the following information:
| Job 1 | Job 2 |
| Direct materials | $4,500 | $9,380 |
| 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 priceincludes a 40 percent markup over full manufacturing cost.
1.Calculate a plantwide rate for Firenza Company based on machinehours.
$ per machine hour
What is the bid priceof each job using this rate?
2.Calculate activity rates for the four overhead activities
What is the bid priceof each job using these rates?
