The Controller for Halifax Photographic Supply Has Established the Following

question 42

Essay

The controller for Halifax Photographic Supply has established the following cost pools and cost drivers: $\begin{array} { | l | r | l | r | l | } \hline \text { Activity Cost Pool } & \begin{array} { c } \text { Budgeted } \\\text { Overhead } \\\text { Cost }\end{array} & { \text { Cost Driver } } & \begin{array} { c } \text { Budgeted } \\\text { Level for } \\\text { Driver }\end{array} & { \text { Pool Rate } } \\\hline \text { Machine setups } & \$ 200,000 & \text { Number of setups } & 100 & \$ 2,000 \text { per setup } \\\hline \text { Material handling } & 100,000 & \text { Pounds of raw material } & 50,000 & \$ 2 \text { per pound } \\\hline \begin{array} { l } \text { I lazardous waste } \\\text { control }\end{array} & 50,000 & \begin{array} { l } \text { Pounds of hazardous } \\\text { chemicals }\end{array} & 10,000 & \$ 5 \text { per pound } \\\hline \text { Quality control } & 75,000 & \text { Number of inspections } & 1,000 & \begin{array} { l } \$ 75 \text { per } \\\text { inspection }\end{array} \\\hline \text { Other overhead costs } & \underline {200,000} & \text { Machine hours } & 20,000 & \begin{array} { l } \$ 10 \text { per machine } \\\text { hr. }\end{array} \\\hline \text { Total } & \underline {\$ 625,000} & & & \\\\\hline\end{array}$ An order for 1,200 boxes of film-development chemicals has the following production requirements. $\begin{array} { | l | r | } \hline \text { Machine setups } & 8 \\\hline \text { Pounds of raw materials } & 16.000 \\\hline \text { Pounds of hazardous chemicals } & \text { None } \\\hline \text { Inspeetions } & 4 \\\hline \text { Machine hours } & 400 \\\hline \text { Direct materials and labour cost } & \$ 24.000 \\\hline\end{array}$ Halifax established a target price by adding a 40% markup to total manufacturing cost.
Required:
A. Determine the order's target price by using the activity-cost pools.
B. Assume that Halifax used a single, combined overhead rate based on weight of raw materials.
1. Determine the predetermined overhead rate.
2. Determine the expected cost of the order.
3. Determine the target price.
4. Which approach above ("A" or "B") seems to be a more reasonable method to establish target prices? Explain.

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Definitions:

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A term referring to a response that varies in degree or intensity, rather than being an all-or-nothing reaction.