ShopOnline Inc. is a small IT company that takes care of website development and IT securities for its parent company’s online shopping website. The parent company is a large retailer in North American that had successfully developed an online purchase option that ships globally. To maintain simplicity, ShopOnline book all costs as overhead costs and bill the parent company quarterly. Now that the online store is running successfully, ShopOnline had freed up some capacity. During the pandemic in 2021, many small businesses are trying to convert to e-commerce and had approached to ShopOnline for website developments. To work with external clients, ShopOnline now needs to come up with a pricing system. You, as the manager at ShopOnline, determined that if they price a project at 1.25 times the cost, their pricing is competitive enough and should win the projects. (price = total cost * 1.25)

ShopOnline operates in four functions: website development, data entry for products, data collection on customer orders, and security maintenance. The total cost for 2020is $685,240 and costs for each function are listed below.

The cost of each function is driven by different activities. The cost drivers and consumptions for 2020are listed below.

Please kindly answer the following questions:

1.What is the activity-based overhead rate for each activity?

2.The parent company has a new category of products they want to put online. There are 12 new products and will require 5 hours for engineers to develop the website. What is the total cost for this project?

Transcribed Image Text:

Functions Website development Data entry - products Data Collection - orders Security maintenance Costs in 2020 $300,000.00 $218,400.00 $51,840.00 $115,000.00 Function/Activities Website development Data entry - products Data collection - orders Security maintenance Cost drivers Engineer Hours Number of products Number of online orders processed Engineer Hours Consumption in 2020 6,000 7,280 17,280 2,300 Functions Website development Data entry - products Data Collection - orders Security maintenance Costs in 2020 $300,000.00 $218,400.00 $51,840.00 $115,000.00 Function/Activities Website development Data entry - products Data collection - orders Security maintenance Cost drivers Engineer Hours Number of products Number of online orders processed Engineer Hours Consumption in 2020 6,000 7,280 17,280 2,300

Answer rating: 100% (QA)

1 Calculation of Activity rates FunctionActivities Website devel... View the full answer