Lancelot Manufacturing is a small textile manufacturer using machineminus−hours as the single indirect − cost 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 Cae 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. $1,122.
B. $3,927.
C. $960.
D. $3,360.

The correct answer is B.

Step-by-step explanation:

Giving the following information:

Job:

Direct materials= $2,000

Direct labor= $400

Machine-hours= 900 mh

Company:

Manufacturing overhead costs $45,000

Machine-hours 100,000 mh

Selling price= 40% markup of total manufacturing costs

First, we need to calculate the predetermined overhead rate to allocate overhead:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 45,000/100,000

Predetermined manufacturing overhead rate= $0.45 per machine hour

Now, we can calculate the total cost and the selling price:

Total cost= 2,000 + 400 + 0.45*900= $2,805

Selling price= 2,805*1.4= $3,927