70.2K

Verified Solution

Link Copied!

Whitman Printing Ltd. has contracts to complete weekly supplements required by its' customers. For the current year, manufacturing overhead cost estimates total $336,000 for an annual production capacity of 12 million pages.

Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that a number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:

Manufacturing Cost pool overhead costs Activity level Design changes $ 60,000 200 design changes Setups 96,000 8,000 setups Inspections 180,000 12,000 inspections Total manufacturing overhead costs$336,000

Two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 80,000 96,000 Design changes 10 0 Setups (one per job) 50 12 Inspections 40 12 Designs (one per job) 50 12

Pages are a direct cost at $0.03 per page. Design costs per job average $1,000 and $1,200 for Money Managers and Hospital Systems, respectively. Whitman Printing sets prices at $0.10 per page plus 120% of design costs.

Required:

Prepare income statements for both customers using:

a. Traditional costing with overhead applied on a page capacity basis

b. Activity-based costing

c. How much a page should Money Managers be charged if Whitman Printing wants to break even on this customer? Assume that manufacturing overhead costs are fixed and that they are allocated to customers based on pages sold as a percentage of production capacity; and, that design costs are also fixed.

Answer & Explanation Solved by verified expert

See Answer