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	$	12	per direct labor-hour
Batch processing	Number of batches	$	94	per batch
Order processing	Number of orders	$	283	per order
Customer service	Number of customers	$	2,628	per customer

The company just completed a single order from Interstate Trucking for 3,000 custom seat cushions. The order was produced in four batches. Each seat cushion required 0.4 direct labor-hours. The selling price was $142.20 per unit, the direct materials cost was $107 per unit, and the direct labor cost was $14.70 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

Customer margin on sales to Interstate Trucking for the year is as calculated below:

Interstate Trucking
Customer Margin
Particulars	Amount ($)	Amount ($)
Sales		426,600
Less: Costs:
Direct Material	321,000
Direct Labour	44,100
Supporting direct labour	14,400
Batch processing	376
Order processing	283
Customer service	2,628
Total costs		382,787
Customer Margin		43,813

Working:

Particulars	Working
Sales	3,000*142.2
Direct Material	3,000*107
Direct Labour	3,000*14.7
Supporting direct labour	12*0.4*3,000
Batch processing	94*4
Order processing	283*1
Customer service	2,628*1