3manage costs?10-31. Activity-Based Costing of CustomersRupert's Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. Thefirm adds 6 percent to the cost of the appliances to cover the delivery cost. The delivery fee ismeant to cover the cost of delivery. The finance team at RAW has analyzed the delivery serviceusing activity-based costing methods and identified four activities. Data on these activities follow:100ActivityProcessing order..Loading truck...Delivering order.....Billing.....Total overhead...Cost DriverNumber of ordersNumber of itemsNumber of ordersNumber of invoicesOrder value (total) . . . . .Number of orders..Total number of items.Number of invoices.Activity Cost$ 90,000180,000108,00070,000$448,000Two of Rupert's customers are McLean Designs and Neveux Appliances. Data for orders anddeliveries to these two customers follow:..Cost Driver Volume3,000 orders60,000 items3,000 orders2,500 invoicesMcLeanDesigns$90,000313607NeveuxAppliances$96,0006690060(LO 10-3, 4) RequiredrollodWhat would the delivery charge for each customer be under the current policyorder value?a.b.C.of 6 percent ofWhat would the activity-based costing systemHow could Rupert's use the information identified by the new costingestimate as the cost of delivering to eachcustomer?method to manage costs?

Activity-Based Costing (ABC) is a costing methodology that assigns overhead costs to specific activities or services based on their actual consumption or use of resources. ABC identifies the activities that drive costs within an organization and allocates those costs to the products, services, or customers that consume those activities.Rupert's use the information identified by the activity based costing method to change the pricing of delivery service. In additon to this, it helps to work up with the customers in reducing costs of orders and delivery charges.(a) Delivery charge per customer:McLean Designs - $5,400Neveux Appliances - $5,760(b) Activity-based costing system estimate as the cost of delivering to each customer:(c) Rupert's use the information identified by the activity based costing method to change the pricing of delivery service. In additon to this, it helps to work up with the customers in reducing costs of orders and delivery charges.

Business

Accounting

Rupert's Appliance Warehouse (RAW) delivers appliances to retail firm adds 6 percent to the cost of the appliances to cover the deliv meant to cover the cost of delivery. The finance team at RAW has a using activity-based costing methods and identified four activities. D

Rupert's Appliance Warehouse (RAW) delivers appliances to retail firm adds 6 percent to the cost of the appliances to cover the deliv meant to cover the cost of delivery. The finance team at RAW has a using activity-based costing methods and identified four activities. D

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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Question

3
manage costs?
10-31. Activity-Based Costing of Customers
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:
100
Activity
Processing order..
Loading truck...
Delivering order.....
Billing.....
Total overhead.
..
Cost Driver
Number of orders
Number of items
Number of orders
Number of invoices
Order value (total) . . . . .
Number of orders..
Total number of items.
Number of invoices.
Activity Cost
$ 90,000
180,000
108,000
70,000
$448,000
Two of Rupert's customers are McLean Designs and Neveux Appliances. Data for orders and
deliveries to these two customers follow:
..
Cost Driver Volume
3,000 orders
60,000 items
3,000 orders
2,500 invoices
McLean
Designs
$90,000
31
360
7
Neveux
Appliances
$96,000
66
900
60
(LO 10-3, 4)

Required
rollod
What would the delivery charge for each customer be under the current policy
order value?
a.
b.
C.
of 6 percent of
What would the activity-based costing system
How could Rupert's use the information identified by the new costing
estimate as the cost of delivering to each
customer?
method to manage costs?

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