Explore BrainMass
Share

# Activity-based costing of customers

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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?