Excellent Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2018 Excellent 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:

During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

When costs are assigned using the single cost driver, number of pages printed, then ________.
A) Excellent 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

Question

Excellent Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.
For 2018 Excellent 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:

During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

When costs are assigned using the single cost driver, number of pages printed, then ________.
A) Excellent 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

Quizplus · Accepted Answer

When costs are assigned using the single cost driver of number of pages printed, Money Managers is being under billed for the job since it has a high number of design changes, setups, and inspections compared to other customers. Meanwhile, other jobs will be over billed since their overhead costs are being spread out among more pages, resulting in a lower cost per page. This could lead to Money Managers seeking to do business with competitors, as they may find the cost of doing business with Excellent Printers to be too high. Therefore, it is best for Excellent Printers to evaluate the use of additional cost pools to more accurately allocate overhead costs to customers based on their specific usage of resources.

Excellent Printers Has Contracts to Complete Weekly Supplements Required by Forty-Six