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	$	85	per batch
Order processing	Number of orders	$	280	per order
Customer service	Number of customers	$	2,636	per customer

The company just completed a single order from Interstate Trucking for 1,800 custom seat cushions. The order was produced in four batches. Each seat cushion required 0.5 direct labor-hours. The selling price was $142.00 per unit, the direct materials cost was $101 per unit, and the direct labor cost was $13.90 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.

Answer 1

Solution:

Interstate Trucking
Customer Margin-ABC Analysis
Sales (1800*$142.00)		$2,55,600
Costs:
Direct Material (1800*$101)	$1,81,800
Direct Labor (1800*$13.90)	$25,020
Overhead:
Supporting Direct Labor (1800*0.5*14)	$12,600
Batch Processing (4*$85)	$340
order Processing (1*$280)	$280
customer service (1*$2636)	$2,636
Total Costs		$2,22,676
Customer margin		$32,924