Whitman Printing Has Contracts to Complete Weekly Supplements Required by Forty-Six

question 106

Multiple Choice

Whitman Printing has contracts to complete weekly supplements required by forty-six customers.For the year 20X5,manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2010,Whitman 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:
$$\begin{array} { l r r } \text { Cost pool } & \text { Manufacturing overhead costs } & \underline { \text { Activity level } } \\\text { Design changes } & \$ 120,000 & 200 \text { design changes } \\\text { Setups } & 640,000 & 4,000 \text { setups } \\\text { Inspections } & \underline{80,000} & 16,000 \text { inspections } \\\text { Total manufacturing overhead costs } & \$ 840,000 &\end{array}$$ During 2010,two customers,Money Managers and Hospital Systems,are expected to use the following printing services:
$\begin{array}{lcc}\text { Activity }&\text { Money Managers }&\text { Hospital Systems }\\\text { Pages } & 60,000 & 76,000 \\\text { Design changes } & 10 & 2 \\\text { Setups } & 20 & 10 \\\text { Inspections } & 30 & 38\end{array}$ When costs are assigned using the single cost driver,number of pages printed,then Hospital Systems ________.

• A) is fairly billed because resources are allocated uniformly to all jobs
• B) is grossly under billed for the job, while other jobs will be unfairly over billed
• C) will likely seek to do business with competitors
• D) will contribute too little to profits, and Wallace Printing will not want to accept additional work from the company

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Definitions:

Epiphyseal Lines

The remnants of the epiphyseal plate in long bones, seen in adults, indicating the previous site of longitudinal growth during childhood and adolescence.

Articular Cartilage

The smooth, white tissue that covers the ends of bones where they come together to form joints.

Epiphysis

The terminal section of a lengthy bone that originally develops independently from the main body.

Spongy Bone

Spongy bone, also known as cancellous bone, is less dense bone that is found at the ends of long bones and in the inner layers of other bones, characterized by a porous structure.