Walters Company is a medium-sized advertising firm on the West Coast. Walters has three departments that specialize in advertising and public relations services for differ¬

ent markets: Tangible Goods (headed by Sherri Donaldson); Nonprofit Organizations

(headed by Mike Adams); and Public Relations (headed by Carla Wilson). Previously, Walters had subcontracted out necessary printing and graphics work. However, recent technological advances in desktop publishing led to the formation of a new in-house Graphics Department, which could produce brochures, booklets, posters, etc. The Tangi¬

ble Goods and Public Relations Departments immediately began to use the new graphics services. Nonprofit Organizations, however, was reluctant to switch from its traditional outsider supplier. Jim Walters, president and CEO of Walters Company, encouraged all departments "to get on board" with Graphics. Paul Murphy, the head of Graphics, as¬

sured Mike Adams that Graphics could serve Mike's departmental needs by spending an additional $2,000 above total 2000 costs. So during 2001, Mike Adams decided to give Graphics a try.

Data for the Graphics Department are as follows:

Actual costs equaled budgeted costs in both 2000 and 2001. Graphics services are charged to user departments on the basis of actual cost per hour of graphics time used.
Required:
1. What was the graphics rate per hour charged in 2000? In 2001?
2. How much was the Nonprofit Organizations Department charged for graphics services in 2001 ? How do you think Mike Adams felt about this?
3. How can you reconcile the difference between the rate charged Mike Adams during 2001 and the $2,000 incremental cost cited by Paul Murphy?

Transcribed Image Text:

2000 2001 Actual costs DLH used by: $12,000 $14,000 Tangible goods 2,000 2,000 Public relations 2,000 2,000 Nonprofit organizations 1,000