Rockstar Printing is a company that provides printing services. Rockstar Printing bids on print jobs, however, new jobs are negotiated on a cost-plus basis. (Cost-plus means if the total Job cost were $5.00 at 30% cost-plus, the selling price would be $6.50 with $1.50 as profits to Rockstar Printing).

Rockstar Printing's president that she wants you to find a way to charge most of the company's costs to projects that are on a cost-plus basis. You have heard rumors of the president seeking a new job elsewhere and realize that this is perhaps why she has requested you to maximize the profits. Currently, Rockstar Printing allocates manufacturing overhead using direct labor hours.

Rockstar Printing's current revenue streams are made up of 75% new bids and 25% old recurring contracts with set pricing. This is based on the 500 completed jobs from the year prior. Provided below is the cost information of Rockstar Printing.

(Based on 500 jobs this year)

	Average Cost Rate	Average hours per new bid	Average hours per contract jobs	Annual total of all jobs
Direct Labour
Design Team	$95/hour	18	5	7,375 hours
Layout	$75/hour	6	4	2,750 hours
Printing Labour	$25/hour	50	90	30,000 hours
				40,125 hours

Direct Materials	Average cost rate	average per new bid	average per contract job	annual total
Paper Costs	$10/lbs	800 lbs	1200 lbs	450,000 lbs

Other annual costs for the year

Executive salary and admin salaries - $400,000

Factory Janitorial and Security Wages - $90,000

Ink Supplies - $340,000

Factory Utilities and supplies - $50,000

Shipping Costs - $10,000

Website Costs - $8,000

Printing equipment depreciation - $9,000

Factory Supervisor - $85,000

Factory insurance Costs - $15,000

Total - $1,007,000

Answer the following questions:

1) What allocation base could you use to accomplish the president's objective of maximizing profits? (Calculate the predetermined overhead for the current allocation and your proposed allocation using the different activity base.)

2) Does this affect the overall cost of Rockstar Printing? Explain. How much would the total revenue of Rockstar Printing increase based on your proposed change?