OFC Company of Kansas City prints business forms and other specialty paper products, such as writing paper,

Question:

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 (ABC) system. The budgeted usage of each activity cost driver and cost-driver rates for January 2022 for the Business Services division are:

For the month, the division expects to make 11,700 deliveries to deliver 1,170,000 cartons to customers.

Required

1. What is the total budgeted cost for each activity and for the Business Services division in January 2022?

2. Assume, in contrast to requirement 1, that activity-related information was not available. Rather, the only information available is that the budgeted fixed costs for the month are $1,000,000, and the budgeted variable cost per carton is estimated as $1.30. What is the budgeted total cost for the month using this single volume-based approach? Compare and comment on the difference in your answers to requirements 1 and 2.

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? What would be necessary in order for the company to be able to realize these estimated cost savings? Can you estimate the amount of savings if the firm uses a single cost rate (based on the number of cartons delivered) to determine the budgeted cost for the division?

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