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 $350,000 for an annual
production capacity of 1 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
400 design changes
Setups
250,000
5,000 setups
Inspections
40,000
10,000 inspections
Total manufacturing overhead costs
$350,000
During 2019, two customers, World Makers and Happy
Studios, are expected to use the following printing
services:
Activity
World Makers
Happy Studios
Pages
8,000
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 1 million pages of production
capacity?
a. $0.03 per
page
b. $0.05 per
page
c. $0.35 per
page
d. $0.025 per
page
e. $0.045 per
page
ANSWER:
A cost pool is an aggregate or total cost of a particular business activity.
The cost driver rate is found by dividing the Estimated total manufacturing by the Estimated total activity level.
As per the question the manufacturing overheasd is to be taken as a large cost pool
And the activity level is 1 million pages of production capacity
So,
Estimated manufacturing cost = $350000
Estimated activity level = 1000000 pages
So the answer is OPTION C. $0.35 per page
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