Craig Oldenettel owns and manages a commercial cold-storage warehouse that has 100,000 cubic feet of storage capacity. Historically, he has charged customers a flat rate of $ 0.16 per pound per month for goods stored. In the past two years, Oldenettel has become dissatisfied with the profitability of the warehouse operation. Despite the fact that the warehouse remains relatively full, revenues have not kept pace with operating costs. Recently, Oldenettel asked his accountant, Pamela Beattie, to improve his understanding of how activity-based costing could help him revise the pricing formula. Beattie has determined that most costs can be associated with one of four activities. Those activities and their related costs, volume measures, and volume levels for 2013 follow:

a. Based on the activity cost and volume data, determine the amount of cost assigned to the following customers, whose goods were all received on the first day of last month:

b. Determine the price to be charged to each customer under the existing pricing plan.
c. Determine the price to be charged using ABC, assuming Oldenettel would base the price on the cost determined in (a) plus a markup of 40 percent.
d. How well does Oldenettel’s existing pricing plan capture the costs for providing the warehouse services?Explain.

  • CreatedJune 03, 2014
  • Files Included
Post your question