Purchase Solution

Activity-based costing of customers

Not what you're looking for?

Ask Custom Question

Please see the attachment for the formatted question.

10-23. Activity-Based Costing of Customers

Marvin's Kitchen Supply delivers restaurant supplies 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 $ 50,000 5,000 orders
Loading truck . . . . . . . . . . . . Number of items 100,000 100,000 items
Delivering merchandise . . . . Number of orders 60,000 5,000 orders
Processing invoice . . . . . . . . Number of invoices 48,000 4,000 invoices
Total overhead. . . . . . . . . . ..................................................$258,000

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 . . . . . . . . . . . . . $50,000 $60,000
Number of orders . . . . . . . . 52 110
Number of items . . . . . . . . . 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. What would the activity-based costing system estimate as the cost of delivering to each customer?
c. How could Marvin's use the information identified by the new costing method to manage costs?

Purchase this Solution

Solution Summary

This solution examines the activity-based costing of customers at Marvin's Kitchen Supply.

Solution provided by:
Education
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
Recent Feedback
  • "I got this feedback and I wanted to know if you can explain it to me. I noticed something within your workings which I believe is incorrect.  It looks like you've mistaken the Debt ratio for the Equity Multiplier.  You've done a calculation to determine Return on Equity (ROE) but if you take a look at the ratios provided for us you'll see ROE listed on the bottom line already.  You can use ROE, Profit Margin and Total Asset Turnover to figure out the Equity Multiplier amount.  Equity multiplier is not provided for us and we need to calculate it.  I really hope this is helpful to you.  "
  • "Very attentive to detail. Answers are designed in easy to understand format."
  • "Fast response and thorough answer"
  • "thank you very much! "
  • "thank you so much !!!!!!!"
Purchase this Solution


Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Basics of corporate finance

These questions will test you on your knowledge of finance.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.