Question

Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $600,000 for an annual production capacity of 12 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 $120,000 500 design changes Setups 380,000 4,000 setups Inspections 100,000 9,000 inspections Total manufacturing overhead costs $600,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 70,000 86,000 Design changes 12 0 Setups 17 7 Inspections 26 34 Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Money Managers during 2018?

Answer 1

Answer:

$4,783.88

Explanation:

As for the provided information, the problem is based on activity based costing.

There are 3 activities:

i) Design Changes = $120,000 for 500 changes

Cost per change = $\frac{120,000}{500}$ = $240 for each change

ii) Setups = $380,000 for 4,000 setups

Cost per setup = $\frac{380,000}{4,000}$ = $95 for each setup

iii) Inspections = $100,000 for 9,000 inspections

Cost per inspection = $\frac{100,000}{9,000}$ = $11.11

In case of Money Managers, there is printing of 70,000 pages

Design charges = 12 design changes $\times$ $240 = $2,880

Setup charges = 17 setups $\times$ $95 = $1,615

Inspection charges = 26 inspections $\times$ $11.11 = $288.88

Total overhead cost for Money Managers = $2,880 + $1,615 + $288.88 = $4,783.88