Retail Company currently allocates indirect costs to customers at a rate of 15% of customer revenue....

Transcribed Image Text:

Retail Company currently allocates indirect costs to customers at a rate of 15% of customer revenue. Retail has two customers AB and XY with data as follows: AB XY $275 $275 Selling Price per unit Units Sold 50,000 12,000 $195 $195 Manufacturing Cost per unit Number of Purchase Orders 8,000 6,000 Number of Deliveries 5,800 4,200 Number of Expedited deliveries 400 350 Customer Visits 1,800 2,750 a. Using the current costing system to allocate support costs, calculate Operating Income for customers AB and XY. Retail's Management Accountant has gathered the following ABC rate information: ABC Cost Rate Purchase Orders Deliveries $168.00 per purchase order $ 16.00 per delivery $26.00 per expedited delivery $ 5.00 per customer visit Expedited Deliveries Customer Visits b. Calculate the total support cost allocated to AB & XY using the Activity Based Costing (ABC) system. c. Comparing the indirect cost allocated in part a. to the indirect cost allocated in part b. discuss an important strategic (not operations) implication of what you believe is the best allocation method based on your analysis. Retail Company currently allocates indirect costs to customers at a rate of 15% of customer revenue. Retail has two customers AB and XY with data as follows: AB XY $275 $275 Selling Price per unit Units Sold 50,000 12,000 $195 $195 Manufacturing Cost per unit Number of Purchase Orders 8,000 6,000 Number of Deliveries 5,800 4,200 Number of Expedited deliveries 400 350 Customer Visits 1,800 2,750 a. Using the current costing system to allocate support costs, calculate Operating Income for customers AB and XY. Retail's Management Accountant has gathered the following ABC rate information: ABC Cost Rate Purchase Orders Deliveries $168.00 per purchase order $ 16.00 per delivery $26.00 per expedited delivery $ 5.00 per customer visit Expedited Deliveries Customer Visits b. Calculate the total support cost allocated to AB & XY using the Activity Based Costing (ABC) system. c. Comparing the indirect cost allocated in part a. to the indirect cost allocated in part b. discuss an important strategic (not operations) implication of what you believe is the best allocation method based on your analysis.

Answer rating: 100% (QA)

B AB C Total 27500 27500 50000 12000 1375000000 330000000 1705000000 975000000 234000000 1209000000 ... View the full answer