Answer the following questions using the information below:
Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2010 Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
Cost pool Manufacturing overhead costs Activity level
Design changes $ 120,000 200 design changes
Setups 640,000 4,000 setups
Inspections 80,000 16,000 inspections
Total manufacturing overhead costs $840,000
During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
Activity Money Managers Hospital Systems
Pages 60,000 76,000
Design changes 10 2
Setups 20 10
Inspections 30 38
31) Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?
A) $600 per change, $160 per setup, $5.00 per inspection
B) $500 per change, $400 per setup, $7.50 per inspection
C) $420 per change, $210 per setup, $52.50 per inspection
D) $666 per change, $250 per setup, $8.00 per inspection
32) Using the activity-cost driver rates determined in the previous question, what is the manufacturing overhead cost estimate for Hospital Systems during 2010?
A) $6,227.50
B) $2,990.00
C) $4,136.00
D) $6,825.00
33) Availability of reliable data and measures should be considered when choosing a cost-allocation base.
34) When designing a costing system, it is easiest to calculate per-unit costs first, and then total costs.
35) ABC systems attempt to trace more costs as indirect costs.
36) ABC systems create heterogeneous cost pools linked to different activities.
37) ABC systems seek a cost allocation base that has a cause-and-effect relationship with costs in the cost pool.
38) For service organizations, activity-based cost systems may be used to clarify appropriate cost assignments.
39) For each of the following activities identify an appropriate activity-cost driver.
a.machine maintenance
b.machine setup
c.quality control
d.material ordering
e.production scheduling
f.warehouse expense
g.engineering design
