The Controller for Shutterbug Photographic Supply Has Established the Following

question 68

Essay

The controller for Shutterbug Photographic Supply has established the following cost pools and cost drivers:
An order for 1,200 boxes of film-development chemicals has the following production requirements: $$\begin{array}{l}\text { Machine setups }\\\begin{array} { l r } \text { Pounds of raw materials } & 16,000 \\\text { Pounds of hazardous chemicals } & \text { None } \\\text { Inspections } & 4 \\\text { Machine hours } & 400 \\\text { Direct materials and labor cost } & \$ 24,000\end{array}\end{array}$$
Shutterbug 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.
C. Which approach above ("A" or "B") seems to be a more reasonable method to establish target prices? Explain.

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Definitions:

Remittance Advice

A document sent by a customer to a seller, indicating that an invoice has been paid.

Running Cash Balance

The current amount of cash available in an account, changing with each transaction.

Company Check

A check written from a company's account, representing an official payment by the company to another party.

Deposits in Transit

Funds that have been deposited by a company but have not yet been recorded by the bank.