Shaw Wallace makes two wines: a regular wine and a premium wine. Shaw Wallace distributes

theregularwineandthepremiumwinethroughdifferentdistributionchannels.Itdistributes

24,000 cases of regular wine through 10 general distributors and 1,60,000 cases of the premium

wine through 30 specialty distributors. Shaw Wallace incurs Rs 42,60,000 in distribution costs.

Under its existing costing system, Shaw Wallace allocates distribution costs to products on the

basis of the cases shipped.To understand better the demands on its resources in the distribution

area, Shaw Wallace identifies three activities and related activity costs:

a. Promotional costs -Shaw Wallace estimates it incurs Rs 16,000 per distributor

b. Order Handling Costs-Shaw Wallace estimates costs of Rs 600 pertaining to each order.

Shaw Wallace records show that distributors of regular wine place an average of 10

orders per year whereas distributors of premium wine place an average of 20 orders per

year.

c. Delivery costs Rs 8 per case.

Required:

I.UsingShawWallaceexistingcostingsystem,calculatethetotaldistributioncostsand

distribution cost per case for the regular wine and the premium wine.

2. Using Shaw Wallace activity based costing system; calculate the total distribution costs and

distribution cost per case for the regular wine and the premium wine.

3.Explainthecostdifferencesandtheaccuracyoftheproductcostscalculatedusingtheexisting

costingsystemandtheABCsystem.HowmightShawWallacemanagementusetheinformation

from the ABC system to manage its business better?

Answer rating: 100% (QA)

1 Using Shaw Wallaces existing costing system First lets calculate the total distribution costs and distribution cost per case for both the regular wine and the premium wine For the regular wine Total ... View the full answer