Question

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $1,760,000 for an annual production capacity of 16 million pages.

For 2018 Velshi Printers has 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                                                                     $160,000      200 design changes

Setups                                                                                     1,530,000                    5,000 setups

Inspections                                                                                 70,000           7,000 inspections

    Total manufacturing overhead costs                     $1,760,000

During 2018, 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                                                                                  14                                         0

Setups                                                                                                   16                                          6

Inspections                                                                                         25                                       33

Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

	A.	$800.00 per change, $306.00 per setup, $10.00 per inspection
	B.	$22.86 per change, $306.00 per setup, $350 per inspection
	C.	$32.00 per change, $10.00 per setup, $306.00 per inspection
	D.	$800.00 per change, $14.00 per setup, $218.57 per inspection

Answer 1

Correct Option A
Working Note :
Note 1: Overhead allocation sheet
Activity	Total OH Cost	Total Cost Driver	Activity Rate
Design Changes	160,000	200	800.00	Per change	(total cost of activity/No. of Activity)
SetUps	1,530,000	5000	306.00	Per setup	(total cost of activity/No. of Activity)
Inspections	70,000	7000	10.00	Per inspection	(total cost of activity/No. of Activity)
Total	1,760,000