Question

Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow. Cost Driver Volume Activity Cost Driver Cost Driver Volume Processing order Number of orders $ 84,000 6,000 orders Loading truck Number of items 370,000 185,000 items Delivering merchandise Number of orders 102,000 6,000 orders Processing invoice Number of invoices 85,000 5,000 invoices Total overhead $ 641,000 Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow. City Diner Le Chien Chaud Order

value $ 86,000 $ 96,000 Number of orders 66 280 Number of items 900 1,600 Number of invoices 14 180

Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?

b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of delivering to each customer.

Answer 1

a.	Delivery charge=Order value*10%
				City Diner	Le Chien Chaud
	Order value		a	86000	96000
	Delivery charge		a*10%	8600	9600
b.	Activity			Overhead cost	Cost driver			Activity rate
				a			b	a/b
	Processing order			84000	Number of orders		6000	14	Per order
	Loading truck			370000	Number of items		185000	2	Per item
	Delivering merchandise			102000	Number of orders		6000	17	Per order
	Processing invoice			85000	Number of invoices		5000	17	Per invoice
				641000
	Delivery charge applied:
	Delivery charge applied=Activity rate*Cost driver usage
					City Diner	Le Chien Chaud
	Activity		Activity rate		Cost driver usage	Overhead assigned	Cost driver usage	Overhead assigned
			a		b	c=a*b	d	e=a*d
	Processing order		14	Per order	66	924	280	3920
	Loading truck		2	Per item	900	1800	1600	3200
	Delivering merchandise		17	Per order	66	1122	280	4760
	Processing invoice		17	Per invoice	14	238	180	3060
	Total					4084		14940