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[The following information applies to the questions displayed below.] OFC Company of Kansas City prints business...

[The following information applies to the questions displayed below.] OFC Company of Kansas City prints business forms and other specialty paper products, such as writing paper, envelopes, note cards, and greeting cards. Its Business Services division offers inventory management services and desktop delivery on request. The division uses an activity-based costing (ABC) system. The budgeted usage of each activity cost driver and cost-driver rates for January 2019 for the Business Services division are: Activity Cost Driver Budgeted Activity Cost-Driver Rate Storage Cartons in inventory 400,000 $ 0.4925 /carton/month Requisition handling Requisitions 30,000 12.50 Pick packing Lines 800,000 1.50 Data entry Lines 800,000 0.80 Requisitions 30,000 1.20 Desktop delivery Per delivery 12,000 30.00 For the month, the division expects to make 11,700 deliveries to deliver 1,170,000 cartons to customers. Required: 1. What is the total budgeted cost for each activity and for the Business Services division in January 2019? 2. Assume, in contrast to requirement 1, that activity-related information was not available. Rather, the only information available is that the budgeted fixed costs for the month are $1,000,000, and the budgeted variable cost per carton is estimated as $1.30. What is the budgeted total cost for the month using this single volume-based approach? 3. Dories Supply Chain Management Company offers to install an electronic order-processing system that transmits customer requisitions via the Internet to the Business Services division for immediate pick, packing, and delivery. No requisition handling and data entry will be needed once the system is fully functional. How much savings can the Business Services division expect from switching to the new system before considering the payment to Dories?

Homework Answers

Answer #1

1.

Activity Cost Driver Budgeted Cost Driver Rate Budgeted Cost of Activity
Storage Cartons in Inventory 400,000 $0.4925 $197,000
Requisition Handling Requisitions 30,000 12.50 375,000
Pick Packing Lines 800,000 1.50 1,200,000
Data Entry Lines 800,000 0.80 640,000
Data Entry Requisitions 30,000 1.20 36,000
Desktop Delivery Delivery 12,000 30.00 360,000
Total $ 2,808,000

2. Budgeted total cost for the month = $ 1,000,000 + $ 1.30 x 1,170,000 = $ 2,521,000

3. Savings for the Business Services division from switching to the new system = $ 375,000 + $ 640,000 + $ 36,000 = $ 1,051,000

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