Question

Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:

		Cost Driver Volume
Activity	Cost Driver	Cost			Driver Volume
Processing order	Number of orders	$	36,000		3,000	orders
Loading truck	Number of items		126,000		105,000	items
Delivering merchandise	Number of orders		45,000		3,000	orders
Processing invoice	Number of invoices		30,000		2,000	invoices
Total overhead		$	237,000

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow:

	City Diner			Le Chien Chaud
Order value	$	70,000		$	80,000
Number of orders		50			120
Number of items		650			1,600
Number of invoices		10			160

Required:

a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?

b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of delivering to each customer. (Do not round intermediate calculations.)

Answer 1

A		City Dinner	Le Chien Chaud
	Order Value	70000	80000
	Delivery Cost	7000	8000
	(10% of Cost of Supplies)
			A	B	A/B
B	Activity	Cost Driver	Cost	Driver Volume	Cost Per Activity
	Processing Order	No of Order	36000	3000	12.00
	Loading Truck	No of Items	126000	105000	1.20
	Delivering Merchandise	No of Order	45000	3000	15.00
	Processing Invoice	No of Invoice	30000	2000	15.00
	Total Overhead		237000
	Allocation to Each Product:	City Dinner	Le Chien Chaud
	Processing Order	600	1440	Activity used* Activity Rate
	Loading Truck	780	1920
	Delivering Merchandise	750	1800
	Processing Invoice	150	2400
		2280	7560