Question

Sleepeze Company produces mattresses for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60% of the mattresses produced. The 19 smaller customers purchase mattresses in approximately equal quantities, where the orders are about the same size. Data concerning Sleepeze’s customer activity are as follows:

	Large Retailer		Smaller Retailers
Units purchased	108,000		72,000
Orders placed	36		3,600
Number of sales calls	18		882
Manufacturing costs	$43,200,000		$28,800,000
Order filling costs allocated*	$1,636,200		$1,090,800
Sales force costs allocated*	$810,000		$540,000
*Currently allocated on sales volume (units sold).

Currently, customer-driven costs are assigned to customers based on units sold, a unit-level driver

Required:

Assign costs to customers by using an ABC approach. Round your answers and all intermediate calculations to the nearest dollar.

Order filling rate	$ per order
Selling call rate	$ per sales call
Cost assignment:
Large retailer	$
Smaller retailers	$

Answer 1

• Requirements asked

[1]

Order filling rate	$750	per order
Selling call rate	$1,500	per sales call

Order filling rate	=(1,636,200+1,090,800)/(36+3600)	per order
Selling call rate	=(810,000+540,000)/(18+882)	per sales call

[2]

Cost assignment:
Large retailer	$54,000	(36 x $750)+(18 x $1,500)
Small retailers	$1,327,350	(3,600 x $750)+(882 x $1,500)