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	$	15	per direct labor-hour
Batch processing	Number of batches	$	85	per batch
Order processing	Number of orders	$	276	per order
Customer service	Number of customers	$	2,640	per customer

The company just completed a single order from Interstate Trucking for 2,100 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.5 direct labor-hours. The selling price was $142.00 per unit, the direct materials cost was $111 per unit, and the direct labor cost was $14.00 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

Sales		$      298,200	=2100*142
Costs
Direct Materials	$      233,100		=2100*111
Direct Labor	$         29,400		=2100*14
Supporting Direct Labor	$         15,750		=2100*0.5*15
Batch Processing	$              170		=2*85
Order Processing	$              276
Customer Service Overhead	$           2,640
		$      281,336
Customer Margin		$        16,864