Question

1.Scholfield 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 PoolActivity MeasureActivity RateSupporting assemblyDirect labor-hours (DLHs)$6.55per DLHProcessing batchesNumber of batches$138.20per batchProcessing ordersNumber of orders$52.60per orderServing customersNumber of customers$1,191.00per customer

The cost of serving customers, $1,191.00 per customer, is the cost of serving a customer for one year.

Latif Corporation buys only one of the company's products which Scholfield Enterprises sells for $15.60 per unit. Last year Latif Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 7 batches were required. The direct materials cost is $7.85 per unit and the direct labor cost is $1.90 per unit. Each unit requires 0.10D LHs.

According to the ABC system, the total overhead cost for this customer this past year was closest to:

Answer 1

	Total overhead cost for this customer:
						$
	Supporting assembly
	(DLHs*Activity rate)				(110*6.55)	720.5
	DLHs=Units ordered*DLHs per unit=1100*0.10=110
	Processing batches
	(Number of batches*Activity rate)				(7*138.20)	967.4
	Processing orders
	(Number of orders*Activity rate)				(2*52.60)	105.2
	Serving customers
	(Number of customers*Activity rate)				(1*1191)	1191
	Total overhead cost for this customer					2984.1