Question

Assume that OfficeMart places orders more frequently, but everything else remains the same. On your worksheet increase the number of orders from 4 to 16. (Prior to completing this requirement, change all worksheet figures back to their original amounts.)

A	B	C	D	E	F
1	Chapter 7: Applying Excel
2
3	Data
4	Manufacturing overhead	$500,000
5	Selling and administrative overhead	$300,000
6
7		Assembling Units	Processing Orders	Supporting Customers	Other
8	Manufacturing overhead	50%	35%	5%	10%
9	Selling and administrative overhead	10%	45%	25%	20%
10	Total activity	1,000	250	100
11		units	orders	customers
12
13	OfficeMart orders:
14	Customers	1	customer
15	Orders	16	orders
16	Number of filing cabinets ordered in total	80	units
17	Selling price	$595
18	Direct materials	$180
19	Direct labor	$50
20

(a) What is the customer margin under activity-based costing when the number of orders increases to 16? (Enter a loss as a negative amount.)

_

(b) What is the product margin under the traditional costing system when the number of orders increases to 16? (Enter a loss as a negative amount.)

   

(c) Which of the following statements are true? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will decrease.
	If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will decrease.
	If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will be unaffected.
	If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will be unaffected.

Answer 1

	Assembling Units	Processing Orders	Customer Service	Others
Manufacturing Overhead	$250,000	$175,000	$ 25,000	$50,000
Selling and Administrative Overhead	30,000	135,000	75,000	60,000
Total Overhead	280,000	310,000	100,000	110,000
Activity Rate	$ 280 per unit	$1,240 per order	$ 1,000 per customer

a. Customer margin under activity based costing: ordering frequency: 16

Sales ( 80 units x $ 595)		$ 47,600
Costs:
Direct materials ( 80 units x $ 180)	$ 14,400
Direct labor ( 80 units x $ 50)	4,000
Manufacturing, selling and admin overhead
Assembling ( 80 units x $ 280)	22,400
Processing orders ( 16 orders x $ 1,240)	19,840
Customer service	1,000	61,640
Customer Margin ( Loss )		$ ( 14,040)

b. Product margin under traditional costing: ordering frequency: 16

Sales		47,600
Cost of Goods Sold
Direct materials	$ 14,400
Direct labor	4,000
Manufacturing overhead ( $ 500,000 / 1,000 ) * 80 units	40,000	58,400
Product margin ( loss)		$ ( 10,800)

c. If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will decrease.

If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will be unaffected.