OFC Company of Kansas City prints business forms and other specialty paper products, such as writing paper, envelopes, note cards, and greeting cards. Its Business Services division offers inventory-management services and desktop delivery on request. The division uses an activity-based costing system. The budgeted usage of each activity cost driver and cost-driver rates for January 2010 for the Business Services division are:

 

					Budgeted		Cost-
Activity			Cost Driver		Activity		Driver Rate
Storage			Cartons in inventory		400,000		$0.4925	carton/month
Requistition handling			Requisitions		30,000		$12.50
Pick packing			Lines		800,000		$1.50
Data entry			Lines		800,000		$0.80
			Requisitions		30,000		$1.20
Desktop delivery			Per delivery		12,000		$30.00

The division made 11,700 deliveries to deliver 1,170,000 cartons to customers. The division expects the average delivery size in January 2010 to remain unchanged.

Deliveries………………………………………… 11,700

cartons delivered………………………… 1,170,000

Required

1. What is the total budgeted cost for each activity and for the Business Services Division in January 2010?

2. What is the budgeted cost per delivered carton and the total budgeted cost for the Business Services Division if the firm uses a single cost rate (based on the number of cartons delivered) to estimate cost?

3. Dories Supply Chain Management Company offers to install an electronic order processing system that transmits customer requisitions via the Internet to the Business Services Division for immediate pick, packing, and delivery. No requisition handling and data entry will be needed once the system is fully functional. How much savings can the Business Services Division expect from switching to the new system before considering the payment to Dories? Can you estimate the amount if the firm uses a single cost rate (based on the number of cartons delivered) to determine the budgeted cost for the division?