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Activity Based Pricing

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A company using activity based pricing marks up the direct cost of goods by 43% plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $8.00 per order placed; $4.00 per separate item ordered; $30.00 per return. A customer places 10 orders with a total direct cost of $3,000, orders 300 separate items, and makes 6 returns. What will the customer be charged?

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Solution Preview

The total charge to the customer will be as follows:

Order Cost = 10*8 ...

Solution Summary

The solution computes customer overhead cost to be charged using Activity Based Pricing.

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Read this article:Throw Out Fixed and Variable Cost Thinking Bring In Activity-Based Costing for Distribution Decisions, Discuss the assertions this author is making in terms of variable and fixed costing and why ABC may make more sense in these type of settings. Justify your answer with good reasoning. You should attempt to integrate the thoughts of this article and your critique of it with the comments you make above.

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