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 Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 353,875 372,500 items Delivering order Number of orders 1,190,000 35,000 orders Handling complaints Number of complaints 40,500 150 complaints Total delivery cost $ 1,584,375 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: Wagner Remodeling Burlington Contractors Total order value (before delivery charge) $ 20,000 $ 28,000 Number of orders 30 72 Total number of items 370 320 Number of delivery complaints 1 7 Required: What would the delivery charge for each customer be under the current policy of 10 percent of order value? What would the activity-based costing system estimate as the cost of delivering to each customer?
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 Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 353,875 372,500 items Delivering order Number of orders 1,190,000 35,000 orders Handling complaints Number of complaints 40,500 150 complaints Total delivery cost $ 1,584,375 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: Wagner Remodeling Burlington Contractors Total order value (before delivery charge) $ 20,000 $ 28,000 Number of orders 30 72 Total number of items 370 320 Number of delivery complaints 1 7 Required: What would the delivery charge for each customer be under the current policy of 10 percent of order value? What would the activity-based costing system estimate as the cost of delivering to each customer?
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 2TP: You are a management accountant for Time Treasures Company, whose company has recently signed an...
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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 | Cost Driver | Annual Cost | Annual Driver Volume | |
|---|---|---|---|---|
| Picking order | Number of items | $ 353,875 | 372,500 | items |
| Delivering order | Number of orders | 1,190,000 | 35,000 | orders |
| Handling complaints | Number of complaints | 40,500 | 150 | complaints |
| Total delivery cost | $ 1,584,375 |
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:
| Wagner Remodeling | Burlington Contractors | |
|---|---|---|
| Total order value (before delivery charge) | $ 20,000 | $ 28,000 |
| Number of orders | 30 | 72 |
| Total number of items | 370 | 320 |
| Number of delivery complaints | 1 | 7 |
Required:
- What would the delivery charge for each customer be under the current policy of 10 percent of order value?
- What would the activity-based costing system estimate as the cost of delivering to each customer?
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