Answer the Following Questions Using the Information Below:
Velshi Printers

question 93

Multiple Choice

Answer the following questions using the information below:
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:
$$\begin{array} { l r r } \text { Cost pool } & \text { Manufacturing overhead costs } & \text { Activity level } \\\text { Design changes } & \$ 120,000 & 300 \text { design changes } \\\text { Setups } & 640,000 & 5,000 \text { setups } \\\text { Inspections } & 80,000 & 8,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 840,000 &\end{array}$$ During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
$$\begin{array} { l r r } \text { Activity } & \text { Money Managers } & \text { Hospital Systems } \\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 0 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$$
-Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Money Managers during 2015?

• A) $5,000
• B) $3,500
• C) $4,200
• D) $6,000

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Definitions:

Margin Of Safety

The difference between actual or projected sales and the break-even point, indicating the amount of sales that can decline before a business incurs a loss.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales activity, such as rent and salaries.

Absorption Costing

A financial accounting technique that integrates all costs incurred from manufacturing, including direct materials, direct labor, along with both fixed and variable overhead costs, into the total cost of a product.

Direct Materials

Raw materials that can be directly linked to the production of finished goods in manufacturing.