2. Wallace Printing has contracts to complete weekly supplements required by for

Question

2. Wallace Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages. For 20X5 Wallace Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design anges, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Design changes Setups Inspections Total MOH costs Manufacturing overhead costs $60,000 320,000 40,000 $420,000 Activity level 200 design changes 4,000 setups 16,000 inspections During 20X5, two eustomers, Wealth Managers and Health Systems, are expected to use the following printing services: Activity Pages Design changes 10 Setups Inspections Wealth Managers 60,000 Health Systems 10 38 30 If manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity, what is the predetermined manufacturing overhead rate? i. Using the predetermined manufacturing overhead rate in the previous question, what is the manufacturing overhead cost estimate for Health Systems during 20X5? ii. iii. Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools? iv. Using the activity-cost driver rates determined in the previous question, what is the manufacturing overhead cost estimate for Health Systems during 20X5?

Explanation / Answer

Req 1: total overheads of company    $ 420,000 Production capacity 12 million pages Budgeted Overhead rate = Total overheads / Production capacity ( 420,000 /12000,000) = $ 0.035 per page Req 2: Health system use 76,000 pages Cost allocated to health system using predetermined rate = 76,000 pages @ 0.035 = $ 2,660 Req 3: Activity cost rates Design changes= Total cost of activity / Number of design change (60,000 /200 ) = $ 300 per design change Setups = Total cost of activity/ Number of setups (320,000 /4000 ) = $ 80 per setup Inspection = Total activity cost / Number of inspections (40,000 /16,000 ) = $ 2.50 per inspection Req 4: Cost allocated to Health systems: Design Change cost = 2 designs@ 300 = 600 Setup cost = 10 setups@80 = 800 Inspections = 38 inspections @2.50 = 95 Total allocated cost 1495

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