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	$	11	per direct labor-hour
Batch processing	Number of batches	$	97	per batch
Order processing	Number of orders	$	273	per order
Customer service	Number of customers	$	2,605	per customer

The company just completed a single order from Interstate Trucking for 2,300 custom seat cushions. The order was produced in five batches. Each seat cushion required 0.5 direct labor-hours. The selling price was $142.00 per unit, the direct materials cost was $103 per unit, and the direct labor cost was $14.80 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. Please include steps and work

Answer 1

Interstate Trucking
Customer Margin—ABC Analysis
Sales (2,300 seats × $142 per seat)		$326,600
Costs:
Direct materials ($103 per seat × 2,300 seats)	$236,900
Direct labor ($14.80 per seat × 2,300 seats)	34,040
Supporting direct labor ($11 per DLH × 0.5 DLH per seat × 2,300 seats)	12,650
Batch processing ($97 per batch × 5 batches)	485
Order processing ($273 per order × 1 order)	273
Customer service overhead ($2,605 per customer × 1 customer)	2,605
		$286,953
Customer margin		$39,647