Marvin's Kitchen Supply delivers supplies for restaurants throughout the city. The firm adds 10...
Question:
Marvin's Kitchen Supply delivers supplies for restaurants throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:
| Cost Driver Volume | |||
|---|---|---|---|
| Activity | Cost Driver | Cost | Driver Volume |
| Processing order | Number of orders | $ 75,000 | 5,000 orders |
| Loading truck | Number of items | 150,000 | 100,000 items |
| Delivering merchandise | Number of orders | 90,000 | 5,000 orders |
| Processing invoice | Number of invoices | 72,000 | 4,000 invoices |
| Total overhead | $ 387,000 | ||
Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow:
| City Diner | Le Chien Chaud | |
|---|---|---|
| Order value | $ 75,000 | $ 90,000 |
| Number of orders | 52 | 110 |
| Number of item | 600 | 1,500 |
| Number of invoices | 12 | 150 |
Required:
a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?
b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of delivering to each customer. (Do not round intermediate calculations.)
Activity-Based Costing (ABC) Process:
Under activity-based costing system, the total overhead cost is allocated to various product lines by identifying a pool of all cost driver activities and determining the overhead activity rates. It is different from traditional costing system, where a single parameter such as machine hour or labor hour is used.
Answer and Explanation: 1
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View this answera. What would the delivery charge for each customer be under the current policy of 10 percent of order value?
The delivery charge for City Diner is...
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The Activity-Based Costing Process
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Chapter 5 / Lesson 3
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Activity-based costing is used to track costs for each aspect of production. Learn the activity-based costing process, including how to use activity cost pools, find activity rates, assign overhead, and report information on a manufacturing overhead budget.
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