Question

In an activity-cost pool

a.         a measure of the activity performed serves as the cost allocation base.

b.         the costs have a cause-and-effect relationship with the cost-allocation base for that activity.

c.         the cost pools are homogeneous over time.

d.         costs in a cost pool can always be traced directly to products.

e.         each pool pertains to a narrow and focused set of costs.

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	Activity level
Design changes	$60,000	300 design changes
Setups	320,000	5,000 setups
Inspections	40,000	8,000 inspections
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

Answer 1