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QUESTION 2 ABC problem Company LSD LTD has 4 types of overhead. The four categories and expected costs for each category for next year are listed below Company LSD LTD Activity cost Setups cost Inspection cost Maintenance cost Material Handling cost Actual overhead Cost $150,000 $90,000 $120,000 $ 82,000 $30,000 Estimates for the proposed job [Job #23] are as follows Direct Materials $6,000 DL (1000 hours) $10,000 Machine Hours (maintenance cost] 500 # of material moves # of setups #of inspections 3 / 5 a + Units produced 240 12 5 10 Page re manager thinks getting this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30%. In the past, full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH). The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity based cost drivers that would be used are : Cost Drivers Machine Hours Material Moves Setups Quality Inspections 15,000 4,600 3,500 5,000 4 Calculate the unit cost using ABC 5 What bid price is the company going to use according to its policy? 6 Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion

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