Carlton Products Compnay has analyzed the indirect costs associated with servici

Question

Carlton Products Compnay has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability. Results appear below:

If all costs were assigned to customers based on the number of items orderd, what would be the cost per item ordered?

Cost Pool Processing electronic orders Processing non-electronic orders Picking orders Packaging orders Returns Annual Cost Cost Driver $1,000,000 Number of orders $2,000,000 Number of orders $3,000,000 Number of different products ordered $1,500,000 Number of items ordered $2,000,000 Number of returns Annual Driver Quantity 500,000 400,000 800,000 50,000,000 50,000

Explanation / Answer

Calculate activity rates for each activity cost pool using activity-based costing. Activity Estimated Overhead Expected Use of Cost Driver Activity Based Overhead Rate- cost per item ordered [a] [b] [c] [b/c] Processing electronic order                         1,000,000 500,000                                        2.00 Processing non-electronic order                         2,000,000 400,000                                        5.00 Picking order                         3,000,000 800,000                                        3.75 Packaging Order                         1,500,000 50,000,000                                        0.03 Return                         2,000,000 50,000                                      40.00

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