Question

Answer the following question(s) using the information below.

Peter’s Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2019, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.

For 2019, Peter’s 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
Design changes	$60,000
Setups	320,000
Inspections	40,000
Total manufacturing overhead costs	$420,000

During 2019, two customers, World Makers and Happy Studios, are expected to use the following printing services:

Activity	World Makers	Happy Studios
Pages	60,000	76,000
Design changes	10	0
Setups	20	10
Inspections	30	38

4. What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?  

5. Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for World Makers during 2019?  

Answer 1

Question 1

Predetermined Overhead Rate based on Pages = Total Estimated Manufacturing Overhead Cost / Total Production Capacity in Pages

Total Estimated Manufacturing Overhead Cost = $ 420,000

Total Production Capacity in Pages = 12,000,000

1 Million = 1,000,000 Pages

Then 12 Million = 12 * 1,000,000

= 12,000,000 Million Pages

Predetermined Overhead Rate = 420,000 / 12,000,000

Predetermined Overhead Rate = $ 0.035 Per Page

Cost Driver Rate = $ 0.035 Per Page

Question 2

Calculation of Overhead Cost for World Makers

Particulars	Amount
Predetermined Overhead Rate	0.035
* Number of Wages Printed	60,000
Overhead Costs for World Makers	2,100