Baldwin Printers has contracts to complete weekly supplements required by forty-two customers. For the year 2011, manufacturing overhead cost estimates total $1,840,000 for an annual production capacity of 20 million pages.
For 2011 Baldwin 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:
During 2011, two customers, Wellington Drugs and Home Again, are expected to use the following printing services:

-When overhead costs are assigned using the single cost driver,number of pages printed,then
A)Baldwin Printers will want to retain this highly-profitable customer.
B)Wellington Drugs will likely seek to do business with competitors in the future.
C)Wellington Drugs is unfairly overbilled for its use of printing resources.
D)Wellington Drugs is grossly underbilled for the job,while other jobs will be unfairly overbilled.

Question

Baldwin Printers has contracts to complete weekly supplements required by forty-two customers. For the year 2011, manufacturing overhead cost estimates total $1,840,000 for an annual production capacity of 20 million pages.
For 2011 Baldwin 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: 
During 2011, two customers, Wellington Drugs and Home Again, are expected to use the following printing services:

-When overhead costs are assigned using the single cost driver,number of pages printed,then
A)Baldwin Printers will want to retain this highly-profitable customer. 
B)Wellington Drugs will likely seek to do business with competitors in the future. 
C)Wellington Drugs is unfairly overbilled for its use of printing resources. 
D)Wellington Drugs is grossly underbilled for the job,while other jobs will be unfairly overbilled.

Quizplus · Accepted Answer

If overhead costs are assigned using the single cost driver of number of pages printed, then Wellington Drugs will be grossly underbilled for the job. This is because they require a high number of design changes, setups, and inspections, which are the primary manufacturing overhead cost drivers. Other jobs will be unfairly overbilled if they do not require these additional cost drivers. Therefore, it is important for Baldwin Printers to evaluate the use of additional cost pools to accurately allocate overhead costs to each job.

Baldwin Printers Has Contracts to Complete Weekly Supplements Required by Forty-Two