Question

Exercise 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, LO7-5]

Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:

Activity Cost Pool	Activity Measure	Activity Rate
Supporting direct labor	Number of direct labor-hours	$	14	per direct labor-hour
Batch processing	Number of batches	$	93	per batch
Order processing	Number of orders	$	289	per order
Customer service	Number of customers	$	2,605	per customer

The company just completed a single order from Interstate Trucking for 1,900 custom seat cushions. The order was produced in four batches. Each seat cushion required 0.6 direct labor-hours. The selling price was $141.90 per unit, the direct materials cost was $112 per unit, and the direct labor cost was $15.00 per unit. This was Interstate Trucking’s only order during the year.

Required:

Calculate the customer margin on sales to Interstate Trucking for the year.

Answer 1

Answer:	The customer margin would be calculated as sales less total cost. It would be calculated as follows:
	Interstate Trucking
	Customer margin-ABC Analysis
	Sales		$      2,69,610.00	($141.90*1900)
	Less: Cost
	Direct material	$      2,12,800.00		($112*1900)
	Direct labor	$         28,500.00		($15*1900)
	Supporting direct labor	$         15,960.00		($14*0.60*1900)
	Batch processing	$              372.00		($93*4)
	Order processing	$              289.00		($289*1)
	Customer service overhead	$           2,605.00	$      2,60,526.00	($2605*1)
	Customer margin		$           9,084.00	($269,610-260,526)