Question

Sleepeze Company produces mattresses for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60% of the mattresses produced. The 19 smaller customers purchase mattresses in approximately equal quantities, where the orders are about the same size. Data concerning Sleepeze’s customer activity are as follows:

	Large Retailer		Smaller Retailers
Units purchased	108,000		72,000
Orders placed	36		3,600
Number of sales calls	18		882
Manufacturing costs	$43,200,000		$28,800,000
Order filling costs allocated*	$1,527,120		$1,018,080
Sales force costs allocated*	$864,000		$576,000
*Currently allocated on sales volume (units sold).

Currently, customer-driven costs are assigned to customers based on units sold, a unit-level driver. Assign costs to customers by using an ABC approach.

order filling rate =

selling call rate =

cost assignments:

large retailers =

smaller retailers =

Answer 1

	A	B	C= A/B
Particulars	Activity Cost	Total Cost Driver	Activity Allocation Rate
Order Filing Costs	25,45,200	3,636	700	Per Order
Sales Call Costs	14,40,000	900	1,600	Per Sales Call
Total	39,85,200

Total Cost Driver consists of Cost Driver for Large Retailers as well as Small Retailers.

Total Order Places = 36 + 3,600 = 3,636 Orders

Total Sales Call = 18 + 882 = 900 Sales Call

Total Order Filing Costs = 15,27,120 + 10,18,080 = $ 25,45,200

Total Sales Call Cost = 864,000 + 576,000 = $ 1440,000

Particulars	Order Costs	Sales Costs
Costs Rate	$ 700 per Order Placed	$ 1,600 per Sales Call

Part 2

	A	B	C=A*B	D	E= A*D
Particulars	Activity Allocation Rate	Activity for Large Retailers	Total Overhead for Large Retailers	Activity for Small Retailers	Total Overhead for Small Retailers
Order Placing Costs	700	36	25,200	3,600	25,20,000
Sales Call Costs	1,600	18	28,800	882	14,11,200
Total Costs Allocated			54,000		39,31,200

Particulars	Large Retailers	Small Retailers
Costs Allocated	54,000	39,31,200