Rupert’s 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:ActivityCost DriverActivity CostCost Driver VolumeProcessing orderNumber of orders$ 42,0003,000ordersLoading truckNumber of items171,00095,000itemsDelivering orderNumber of orders51,0003,000ordersBillingNumber of invoices34,0002,000invoicesTotal overhead $ 298,000 Two of Rupert's customers are McLean Designs and Neveux Appliances. Data for orders and deliveries to these two customers follow: McLean DesignsNeveux AppliancesOrder value (total)$ 76,000$ 86,000Number of orders56136Total number of items4001,600Number of invoices10130Required: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?

The ABC method of costing allocates indirect costs to goods or activities based on the individual…

Answered: rehouse (RAW) delivers appliances to…

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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Rupert’s 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	$ 42,000	3,000	orders
Loading truck	Number of items	171,000	95,000	items
Delivering order	Number of orders	51,000	3,000	orders
Billing	Number of invoices	34,000	2,000	invoices
Total overhead		$ 298,000

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)	$ 76,000	$ 86,000
Number of orders	56	136
Total number of items	400	1,600
Number of invoices	10	130

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?

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