Reference no: EM13367586

Speedy Printers Activity Based Costing Rates Cost Driver

Speedy Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2012, support cost estimates total $840,000 for an annual production capacity of 12 million pages. (round to 4 decimal places).

For 2012 Speedy Printers has decided to evaluate the use of additional cost pools. After analyzing support costs, it was determined that number of design changes, setups, and inspections are the primary support cost drivers. The following information was gathered during the analysis.

Cost Pool Support costs Activity level
Design $120,000 300 design changes
Setups $640,000 5,000 setups
Inspections $ 80,000 8,000 inspections
Total support costs $840,000

During 2012, two customers, Wealth Managers and Health Systems, are expected to use the following printing services.

Activity Wealth Managers Health Systems
Pages 60,000 76,000
Design changes 10 0
Setups 20 10
Inspections 30 38

a. Calculate the cost driver rate if support costs are considered one large cost pool and are assigned based on 12 million pages of production capacity.

b. Using the cost driver rate determined in (a), calculate the support cost estimate for Wealth Managers and Health System during 2012.

c. Assuming cost pools for design changes, setups, and inspections are used, calculate the cost driver rates for each of the three cost pools.

d. Using the cost driver rates determined in (c), calculate the support cost estimate for Wealth Managers and Health Systems during 2012.

e. Review the support costs estimates computed in (b) and (d). show what conclusions can be drawn from this exercise in regard to the use of cost pools.

f. Show how to determine the best number of cost pools for best estimating support costs.