Maureen Company sells fine collectible statues and has implemented activity-base
ID: 2623083 • Letter: M
Question
Maureen Company sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping and Rand has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected and shipped. The final cost pool is used for general operations and supervision of the department and the cost driver is the number of shipments. Information about the department is summarized below:
During the period, the Far East sales office generated 669 orders for a total of 6,190 items. These orders were shipped in 1,450 boxes. What amount of shipping department costs should be allocated to these sales?
Cost Pool Total Costs Cost Driver Annual Activity Packaging and shipping $164,400 Number of boxes shipped 23,500 boxes Final inspection $196,000 Number of individual items shipped 96,300 items General operations and supervision $83,800 Number of orders 8,000 ordersExplanation / Answer
Far East share of shipping costs = (no of boxes Far East shipped / total number of boxes shipped) * Shipping Costs
= (1450/23500) * 164400
= 10143.83