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Question(s) / Instruction(s):

A rather large candy company is attempting to determine the profitability of each of their customers. They are applying activity based costing methods to their overhead costs for marketing administrative, collection and customer service cost. Determine the amount of overhead allocated to the customers below using activity based costing to allocate the overhead. The Overhead costs and related cost drivers are as follows:

 

Cost Pool

Expected Annual Cost

Cost Driver

Expected Level of Cost Driver

Delivery Costs

$500,000

Nbr of miles

1,000,000 miles

 

 

driven

 

Telephone Ordering Costs

$100,000

Nbr of

1,000,000 minutes

 

 

minutes spent

 

 

 

with customer

 

Catalogue Costs

$300,000

Nbr of Catalogues

75,000 Catalogues

 

 

Distributed

 

General & Administrative

$800,000

Cost of Goods Sold

$8,000,000

Marketing Management

$700,000

Sales Dollars

$21,000,000

Promotions

$600,000

Nbr of samples

50,000 samples

 

 

distributed

 

Advertising

$400,000

Nbr of coupons

2,000 coupons

 

 

Redeemed

 

 

Customer X

Customer Y

Customer Z

Nbr of miles driven

100

200

75

Nbr of minutes spent

750

800

300

With customer

 

 

 

Nbr of Catalogues Distributed

100

750

400

Cost of Goods Sold

$500,000

$50,000

$300,000

Sales Dollars

$1,500,000

$150,000

$900,000

Nbr of samples distributed

100

200

150

Nbr of coupons Redeemed

5

150

3

 

Sales and Cost of Goods Sold are:

 

Customer X

Customer Y

Customer Z

Sales Dollars

$1,500,000

$150,000

$900,000

Cost of Goods Sold

$500,000

$50,000

$300,000

 

 

Required:

1) Compute the amount of overhead allocated to Customers X, Y, and Z

2) Compute the profitability of Customers X, Y, and Z

(Put your answers on the chart below. Show your work.)

 

Overhead Allocated to:

Customer X

 

Customer Y

 

Customer Z

 

 

Profitability of Customers:

Customer X

 

Customer Y

 

Customer Z

 

 

 

 

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