Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow. Cost Driver Volume Activity Cost Driver Cost Driver Volume Processing order Number of orders $ 126,000 9,000 orders Loading truck Number of items 340,000 200,000 items Delivering merchandise Number of orders 153,000 9,000 orders Processing invoice Number of invoices 136,000 8,000 invoices Total overhead $ 755,000 Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow. City Diner Le Chien Chaud Order value $ 89,000 $ 99,000 Number of orders 69 310 Number of items 600 1,900 Number of invoices 13 210 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of delivering to each customer. Delivery Charge Per CustomerCity Diner Le Chien Chaud

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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Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow.

		Cost Driver Volume
Activity	Cost Driver	Cost	Driver Volume
Processing order	Number of orders	$	126,000	9,000	orders
Loading truck	Number of items		340,000	200,000	items
Delivering merchandise	Number of orders		153,000	9,000	orders
Processing invoice	Number of invoices		136,000	8,000	invoices
Total overhead		$	755,000

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow.

	City Diner	Le Chien Chaud
Order value	$	89,000	$	99,000
Number of orders		69		310
Number of items		600		1,900
Number of invoices		13		210

Required:

a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?

b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of delivering to each customer.

Delivery Charge Per CustomerCity Diner Le Chien Chaud

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As per the given question delivery charges are equal to 10% of cost of supplies

i.e. 10% of order value from customer

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