Question

Hojoco Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

	Activity Cost Pool	Activity Measure	Activity Rate
	Supporting assembly	Direct labor-hours (DLHs)	$5.20	per DLH
	Processing batches	Number of batches	$107.55	per batch
	Processing orders	Number of orders	$88.75	per order
	Serving customers	Number of customers	$1,793.00	per customer

The cost of serving customers, $1,793.00 per customer, is the cost of serving a customer for one year. Rolf Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:

	Number of units sold to Rolf	900	units
	Number of batches	8	batches
	Number of orders	2	orders
	Direct labor-hour requirement	0.25	DLHs per unit
	Selling price	$16.30	per unit
	Direct materials cost	$6.60	per unit
	Direct labor cost	$5.00	per unit

Required:

How much is the customer margin on sales to Rolf Corporation for the year?

Answer 1

Customer Margin on Sales

1.53% or $0.25 per unit

Working:  

Activity	Activity Rate	Activity	activity cost
Supporting Assembly	$                          5.20	225	$               1,170.00
Processing Batches	$                      107.55	8	$                   860.40
processing Orders	$                        88.75	2	$                   177.50
Serving Cutomers	$                  1,793.00	1	$               1,793.00
Total Overhead Cost			$               4,000.90
Total Units			900
Overhead Cost Per unit			$                       4.45

Total Cost to sell
Direct Material Cost	$                          6.60
Direct Labor Cost	$                          5.00
Total Overhead Cost	$                          4.45
Total Cost to sell	$                        16.05
Selling Price	$                        16.30
Customer Margin on Sales (16.30 - 16.05)	$                          0.25

Customer Margin on Sales (0.25/16.30*100)

1.53%