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Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items. Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $286,000 522,500 32,400 $ 840,900 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 12,500 Annual Driver Volume 357,500 items 27,500 orders 135 complaints 15 310 1 Burlington Contractors $ 13,000 42 305 6 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?

Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items. Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $286,000 522,500 32,400 $ 840,900 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 12,500 Annual Driver Volume 357,500 items 27,500 orders 135 complaints 15 310 1 Burlington Contractors $ 13,000 42 305 6 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 286,000 522,500 32,400 $ 840,900 Total order value (before delivery charge) Number of orders The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Wagner Remodeling $ 12,500 Annual Driver Volume 357,500 items 27,500 orders 15 310 1 135 complaints Burlington Contractors $ 13,000 42 305 Total number of items Number of delivery complaints Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?
Transcribed Image Text:Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 286,000 522,500 32,400 $ 840,900 Total order value (before delivery charge) Number of orders The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Wagner Remodeling $ 12,500 Annual Driver Volume 357,500 items 27,500 orders 15 310 1 135 complaints Burlington Contractors $ 13,000 42 305 Total number of items Number of delivery complaints Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?
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