Question

Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:

Activity Cost Pool	Activity Measure	Activity Rate
Supporting direct labor	Number of direct labor-hours	$	14	per direct labor-hour
Batch processing	Number of batches	$	88	per batch
Order processing	Number of orders	$	282	per order
Customer service	Number of customers	$	2,637	per customer

The company just completed a single order from Interstate Trucking for 2,000 custom seat cushions. The order was produced in four batches. Each seat cushion required 0.3 direct labor-hours. The selling price was $141.20 per unit, the direct materials cost was $107 per unit, and the direct labor cost was $14.20 per unit. This was Interstate Trucking’s only order during the year.

Required:

Calculate the customer margin on sales to Interstate Trucking for the year.

	Interstate Trucking Customer Margin—ABC Analysis Costs: Customer margin

Answer 1

Interstate Trucking
Customer Margin—ABC Analysis
Sales		282400	=2000*141.20
Costs:
Direct materials	214000		=2000*107
Direct labor	8520		=2000*0.3*14.20
Supporting direct labor	8400		=2000*0.3*14
Batch processing	352		=88*4
Order processing	282
Customer service overhead	2637
		234191
Customer margin		48209