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 $ 84,000 6,000 orders Loading truck Number of items 290,000 145,000 items Delivering order Number of orders 102,000 6,000 orders Billing Number of invoices 85,000 5,000 invoices Total overhead $ 561,000 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) $ 86,000 $ 96,000 Number of orders 66 236 Total number of items 900 1,600 Number of invoices 14 180 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?
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 $ 84,000 6,000 orders Loading truck Number of items 290,000 145,000 items Delivering order Number of orders 102,000 6,000 orders Billing Number of invoices 85,000 5,000 invoices Total overhead $ 561,000 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) $ 86,000 $ 96,000 Number of orders 66 236 Total number of items 900 1,600 Number of invoices 14 180 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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 | $ 84,000 | 6,000 | orders |
| Loading truck | Number of items | 290,000 | 145,000 | items |
| Delivering order | Number of orders | 102,000 | 6,000 | orders |
| Billing | Number of invoices | 85,000 | 5,000 | invoices |
| Total |
$ 561,000 |
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) | $ 86,000 | $ 96,000 |
| Number of orders | 66 | 236 |
| Total number of items | 900 | 1,600 |
| Number of invoices | 14 | 180 |
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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