Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of theservices AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage ofthe delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business internspent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to chargecustomers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related tothem:ActivityPicking orderDelivering orderHandling complaintsTotal delivery costCost DriverNumber of itemsNumber of ordersNumber of complaintsAnnual Cost$ 286,000522,50032,400$ 840,900Total order value (before delivery charge)Number of ordersThe intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling andBurlington Contractors. The intern collected the following information on these two customers for the most recent six months:WagnerRemodeling$ 12,500Annual Driver Volume357,500 items27,500 orders153101135 complaintsBurlingtonContractors$ 13,00042305Total number of itemsNumber of delivery complaintsRequired:a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?b. What would the activity-based costing system estimate as the cost of delivering to each customer?

Overheads means all type of indirect costs and expenses being incurred in business. These costs can…

Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items. Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $286,000 522,500 32,400 $ 840,900 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 12,500 Annual Driver Volume 357,500 items 27,500 orders 135 complaints 15 310 1 Burlington Contractors $ 13,000 42 305 6 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter5: Product And Service Costing: Job-order System

Section: Chapter Questions

Problem 28P