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Activity-Based Customer Costing

Sleepeze Company produces mattresses for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60% of the mattresses produced. The 19 smaller customers purchase mattresses in approximately equal quantities, where the orders are about the same size. Data concerning Sleepezes customer activity are as follows:

	Large Retailer		Smaller Retailers
Units purchased	108,000		72,000
Orders placed	36		3,600
Number of sales calls	18		882
Manufacturing costs	$43,200,000		$28,800,000
Order filling costs allocated*	$1,636,200		$1,090,800
Sales force costs allocated*	$756,000		$504,000
*Currently allocated on sales volume (units sold).

Currently, customer-driven costs are assigned to customers based on units sold, a unit-level driver.

Required:

Assign costs to customers by using an ABC approach. Round your answers and all intermediate calculations to the nearest dollar.

Order filling rate	$ per order
Selling call rate	$ per sales call
Cost assignment:
Large retailer	$
Smaller retailers	$

Expert Answer

• Syed Rizvi answered this

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  Answer

  Requirement asked

  Order filling rate	$750.00	per order
  Selling call rate	$1,400.00	per sales call

  --Working

  Order filling rate	=+(1636200+1090800)/(36+3600)	per order
  Selling call rate	=+(756000+504000)/(18+882)	per sales call

  Cost assignment:
  Large retailer	$43,252,200	$43200000 + (36 x $750)+(18 x $1400)
  Small retailers	$32,734,800	$28800000 + (3600 x $750)+(882 x $1400)

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  • Anonymous posted 6 hours ago Edit Delete

    large and small retailers are wrong answers