Question

Activity-Based Customer Costing

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*	$702,000		$468,000
*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	$_______1 per order
Selling call rate	$________ per sales call
Cost assignment:
Large retailer	$_________
Smaller retailers	$_________

Answer 1

ABC costing system allocates cost on the basis of cost drivers. Most suitable cost driver will be used to allocate individual costs.

1) Order Filling Rate = Total Order Filling cost / Total Order

= (1,636,200 + 1,090,800) / (36 + 3600)

= 2,727,000 / 3636

= $ 750 per oder

2) Selling call Rate = Total Sales force cost / total number of sales calls

= ( 702,000 + 468,000) / (18 + 882)

= 1,170,000 / 900

= $ 1,300 per sales call

Please give it a Thumbs up, I seriously need one. If you need any modification then let me know, I will do it for you. Thankyou