Marvin's Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow:

Required
a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?
b. What would the activity-based costing system estimate as the cost of delivering to each customer?
c. How could Marvin's use the information identified by the new costing method to managecosts?

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Cost Driver Volume Driver Volume 5,000 orders 5,000 orders Activity Cost Driver Cost Processing order. Loading truck Delivering merchandise Processing invoice. Number of orders Number of items Number of orders Number of invoices $ 50,000 100,000 60,000 48,000 $258,000 100,000 items 4,000 invoices City Diner Le Chien Chaud Order value. .. Number of orders .. Number of items . . .. Number of invoices $50,000 52 600 12 $60,000 110 1,500 150