Chapter 11, Problem 21E

This year, Hassell Company will ship 4,000,000 pounds of chocolates to customers with total order-filling costs of $900,000. There are two types of customers: those who order 50,000 pound lots (small customers) and those who order 250,000 pound lots (large customers). Each customer category is responsible for buying 1,500,000 pounds. The selling price per pound is $2 per lb for the 50,000 pound lot and $3 per lb for the larger lots, due to differences in the type of chocolate. ABC would likely assign order-filling costs to the customer type as follows:

1. a. $450,000, small; $450,000, large (using pounds as the driver)
2. b. $360,000, small; $540,000, large (using revenue as the driver)
3. c. $750,000, small; $150,000, large (using number of orders as the driver)
4. d. $450,000, small; $450,000, large (using customer type as the driver)