Kramer Corporation is an office supplier dealing in a number of different products It currently allocates its ordering and delivery costs to its residential and business customer groups on the basis of order value. However, the company has recently decided to implement activity-based costing starting in 20X4 to assign these costs to customers. Key data for 20X3 are as follows: 

   

Kramer has 2.030 residential customers and 510 business customers.

 

Required:  

 

1. Compute the cost per customer for residential and business customers for 20X3. using the current system of cost allocation. 

   

2. Assume that the 20X3 data will hold for 20X4. Compute the cost per customer for residential and business customers for 20X4 using the proposed system of cost allocation. In doing so, calculate the overhead allocation rate for each activity, and use these rates to assign costs to the two customer groups.

Transcribed Image Text:

Activity Volume Residential $3,540,000 5,990 2,300 105 Activity Volume Business $2,910,000 1,610 4,100 395 Total Activity Volume $6,450,000 7,600 6,400 500 Activity Cost Activity Base Activity Sales (order value) Order processing Generating sales Sales follow-up $ 950,000 No. of orders 740,000 No. of sales calls 813,000 No. of follow-ups 64,000 No. of change orders Processing change orders 198 202 400 Delivery 1,208,185 No. of deliveries 6,050 4,050 10,100 Total $3,775,185 Activity Volume Residential $3,540,000 5,990 2,300 105 Activity Volume Business $2,910,000 1,610 4,100 395 Total Activity Volume $6,450,000 7,600 6,400 500 Activity Cost Activity Base Activity Sales (order value) Order processing Generating sales Sales follow-up $ 950,000 No. of orders 740,000 No. of sales calls 813,000 No. of follow-ups 64,000 No. of change orders Processing change orders 198 202 400 Delivery 1,208,185 No. of deliveries 6,050 4,050 10,100 Total $3,775,185

Answer rating: 100% (QA)

1 Residential Business Ordering and delivering cost applied 2071962 1703223 Number of customers 2030 ... View the full answer