Answer the following questions using the information below:
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:
During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

-Activity-based-costing information:
A)should be used when services place similar demands on resources
B)usually results in peanut-butter costing
C)will yield inaccurate cost numbers when products are similar
D)may assist in improving product design and efficiency

Question

Answer the following questions using the information below:
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:
  During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:
 
-Activity-based-costing information:
A)should be used when services place similar demands on resources 
B)usually results in peanut-butter costing 
C)will yield inaccurate cost numbers when products are similar 
D)may assist in improving product design and efficiency

Quizplus · Accepted Answer

Activity-based costing may assist in improving product design and efficiency by identifying the primary cost drivers and allowing for the allocation of costs to specific activities. Choice A is incorrect because activity-based costing is specifically designed to handle situations where services place different demands on resources. Choice B is incorrect because activity-based costing avoids peanut-butter costing (i.e. spreading costs evenly across all products). Choice C is incorrect because activity-based costing may actually yield more accurate cost numbers when products are similar, as it allows for the differentiation of costs based on the actual activities required to produce each product.

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