Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2015 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
Cost poolManufacturing overhead costsActivity level
Design changes$ 120,000300 design changes
Setups640,0005,000 setups
Inspections80,0008,000 inspections
Total manufacturing overhead costs$840,000
During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
ActivityMoney ManagersHospital Systems
Pages60,00076,000
Design changes100
Setups2010
Inspections3038
When costs are assigned using the single cost driver, number of pages printed, then ________.
A) Velshi Printers will want to retain this highly profitable customer
B) Money Managers will likely seek to do business with competitors
C) Money Managers is unfairly over billed for its use of printing resources
D) Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed
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