Ruperts Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. The firm adds 6...
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Accounting
Ruperts Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. The firm adds 6 percent to the cost of the appliances to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. The finance team at RAW has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:
Activity
Cost Driver
Activity Cost
Cost Driver Volume
Processing order
Number of orders
$ 65,000
5,000
orders
Loading truck
Number of items
266,000
140,000
items
Delivering order
Number of orders
80,000
5,000
orders
Billing
Number of invoices
64,000
4,000
invoices
Total overhead
$ 475,000
Two of Rupert's customers are McLean Designs and Neveux Appliances. Data for orders and deliveries to these two customers follow:
McLean Designs
Neveux Appliances
Order value (total)
$ 85,000
$ 95,000
Number of orders
65
226
Total number of items
850
1,500
Number of invoices
13
170
Required:
What would the delivery charge for each customer be under the current policy of 6 percent of order value?
What would the activity-based costing system estimate as the cost of delivering to each customer?
Answer & Explanation
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