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	$	9	per direct labor-hour
Batch processing	Number of batches	$	93	per batch
Order processing	Number of orders	$	284	per order
Customer service	Number of customers	$	2,639	per customer

The company just completed a single order from Interstate Trucking for 2,200 custom seat cushions. The order was produced in three batches. Each seat cushion required 0.7 direct labor-hours. The selling price was $141.90 per unit, the direct materials cost was $103 per unit, and the direct labor cost was $14.30 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:-

Here we are given as follow,

No of order = 1 order

No of batches :- 3 Batches

No of seats :- 2200

direct labor-hours:- 0.7

selling price :- $141.90 per unit

direct materials :- $103 per unit

direct labor cost :- $14.30 per unit

No of customer ;- 1 ( since its not mentioned so assume 1 )

Customer margin on sales to Interstate Trucking for the year   ( Kindly look below the table for notes section )

Particulars	Amount	Amount
Sales		$ 312180
Costs :-
Direct materials	$ 226600
Direct labor	$ 31460
Supporting direct labor	$ 13860
Batch processing	$ 279
Order processing	$ 284
Customer service	$ 2639
		$ 275122
customer margin		$ 37058

Note :-

1) Sales = (2200 seats x $ 141.90 per unit ) = $ 312180     

2) Direct materials = ( $ 103 per unit x 2200 seats ) = $ 226600

3) Direct labor = ( $ 14.3 per unit x 2200 seats ) = $ 31460

4) Supporting direct labor= ( $ 9 per direct labor-hour x 0.7 direct labor-hours x 2200 seats = $ 13860

5) Batch processing = ( $ 93 per batch x 3 batches ) = $ 279

6) Order processing = ( $ 284 per order x 1 order 0 = $ 284

7) Customer service = ( $ 2639 per customer x 1 customer ) = $ 2639