Managerial Accounting

QUESTION 2

1. GBC Printing has contracts to complete weekly supplements required by forty-six customers. For the year 2016, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 10 million pages.

   For 2016 GBC Printing 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	200 design changes
   Setups	320,000	4,000 setups
   Inspections	40,000	16,000 inspections
   Total manufacturing overhead costs	$420,000

   During 2016, two customers, Rock & Roll and Kingston Inc, are expected to use the following printing services:

   Activity	Rock & Roll Inc.	Kingston Inc.
   Pages	60,000	76,000
   Design changes	10	2
   Setups	20	10
   Inspections	30	38

   SHOW ALL WORK

   A) If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity, what is the cost driver rate?

   B) Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Kingston Inc. during 2016?

   C) Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

   D) Using activity-based costing to allocate overhead costs, what is the total manufacturing overhead cost estimate for Kingston Inc. during 2016?