Web-books.com is an internet company that sells books on the World Wide Web. The president of the company authorized an activity-based costing study to understand the cost of various activities that are driving overhead at Web-books.com. Selected activites include:
- website maintenance - costs do not vary as a function of sales volume
- retrieving the order from the web site and locating the product costs vary as a function of order size (the number of books per order) because more time is required to fill larger orders.
- Specialty handling - unique packaging is required for oversized (large) products.
- Standard packaging - costs do not appear to vary by the number of books in the order, but are constant across all orders.
Construct a diagram of a two-stage cost allocation system for Web-books.com. Identify each activity pool in your model as unit-level, batch-level, product-level or facility-level.
The solution explains how to prepare a diagram of a two-stage cost allocation system