Question

an activity-cost pool

a. a measure of the activity performed serves as the cost allocation base.

b. the costs have a cause-and-effect relationship with the cost-allocation base for that activity.

c. the cost pools are homogeneous over time.

d. costs in a cost pool can always be traced directly to products.

e. each pool pertains to a narrow and focused set of costs.

Answer the following question(s) using the information below.

Peter’s Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2019, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.

For 2019, Peter’s Printers has 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

300 design changes

Setups

320,000

5,000 setups

Inspections

40,000

8,000 inspections

Total manufacturing overhead costs

$420,000

During 2019, two customers, World Makers and Happy Studios, are expected to use the following printing services:

Activity

World Makers

Happy Studios

Pages

60,000

76,000

Design changes

10

0

Setups

20

10

Inspections

30

38

4. What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?

a. $0.05 per page

b. $0.035 per page

c. $0.35 per page

d. $0.025 per page

e. $0.045 per page

5. Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for World Makers during 2019?

a. $2,500

b. $21,000

c. $1,500

d. $2,700

e. $2,100

Answer 1

Question 1:

Answer: b. the costs have a cause-and-effect relationship with the cost-allocation base for that activity.

Explanation:

An activity cost pool is the costs that have a cause-and-effect relationship with the cost-allocation base for that activity. A group of various individual cost items are called cost pool. For example, Machine setups, inspection cost etc.

Question 4:

Answer: c. $0.35 per page

Calculation:

Manufacturing overhead cost per page = Manufacturing Overhead costs / Number of pages

Manufacturing overhead costs = $420,000

Number of pages = 1,200,000

Manufacturing overhead cost per page = $420,000 / 1,200,000 pages = $0.35 per page

Question 5:

Answer: b. $21,000

Calculation:

World Markers's number of pages = 60,000

Manufacturing overhead cost per page = $420,000 / 1,200,000 pages = $0.35 per page

Manufacturing overhead cost for World Makers = 60,000 pages * $0.35 per page = $21,000

All the best...