Rogers Printing Ltd.has contracts to complete weekly supplements required by its' customers.For the current year, manufacturing overhead cost estimates total $580,000 for an annual production capacity of 14,500,000 pages.Rogers Printing 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:
Two customers, Jackson Sports and Beaufort Travel, are expected to use the following printing services:
Pages are a direct cost at $0.02 per page.Design costs per job average $1,500 and $1,700 for Jackson Sports and Beaufort Travel, respectively.Rogers Printing sets prices at $0.11 per page plus 120% of design costs.Assume that all costs are variable.Required:
Prepare income statements in contribution margin format for both customers using:
a.Traditional (simple)costing with overhead applied on a page capacity basis
b.Activity-based costing
c.How much a page should Jackson Sports be charged if Rogers Printing wants to breakeven on this customer? Assume that manufacturing overhead costs are fixed and that they are allocated to customers based on pages sold as a percentage of production capacity; and, that design costs are also fixed.
Definitions:
Frequency of Association
A concept in psychology referring to how often two ideas, words, or concepts are linked together in a person's memory, affecting the ease of recall or recognition.
Encoding Specificity
The principle that recall is more effective if the context at the time of encoding matches the context at the time of retrieval.
Cognitive Economy
A principle in cognitive psychology that suggests the brain strives to simplify information processing by using the most efficient and simplest ways to understand and process information.
Spreading Activation
A theory in cognitive psychology that suggests ideas in memory are connected and that the activation of one idea can trigger the activation of related ideas.
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