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 | $ | 87 | per batch |
| Order processing | Number of orders | $ | 288 | per order |
| Customer service | Number of customers | $ | 2,637 | per customer |
The company just completed a single order from Interstate Trucking for 2,400 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.6 direct labor-hours. The selling price was $141.30 per unit, the direct materials cost was $111 per unit, and the direct labor cost was $14.40 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:
| Contribution Margin | $ 22,101.00 |
Working Note:
| Sales | $ 339,120.00 |
| Less: Material cost | $ 266,400.00 |
| Less: Labor cost | $ 34,560.00 |
| Less: Overheads | |
| Supporting direct labor | $ 12,960.00 |
| Batch processing | $ 174.00 |
| Order processing | $ 288.00 |
| Customer service | $ 2,637.00 |
| Contribution Margin | $ 22,101.00 |
| Contribution percentage | 6.52% |
Calculations:
| Sales | =2400*141.3 |
| Less: Material cost | =2400*111 |
| Less: Labor cost | =2400*14.4 |
| Less: Overheads | |
| Supporting direct labor | =2400*0.6*9 |
| Batch processing | =87*2 |
| Order processing | =288*1 |
| Customer service | =2637*1 |
In case of any doubt, please feel free to comment.
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