Question

Ranada Company manufactures and sells sportswear products. Ranada uses activity-based costing to determine the cost of the customer return processing and the shipping activity. The customer return processing activity has an activity rate of $45 per return, and the shipping activity has an activity rate of $10 per shipment. Ranada shipped 3,000 units of Product 1 in 1,200 shipments (some shipments are more than one unit). There were 150 returns.
Determine the per-unit customer costs for combined shipping and returns of Product 1.
a. $24.75 per unit
b. $2.25 per unit
c. $6.25 per unit
d. $55 per unit

Answer 1

Answer: The customer cost for combined shipping and returns of Product 1 is $6.25 per unit.(option c)

We arrive at the answer as follows:

A. Calculating cost of returns

$Cost of returns = Cost per returns * Number of returns$

$Cost of returns = 45 * 150$

$Cost of returns = 6750$

B. Calculating Cost of shipments

$Cost of shipments = Rate per shipment * Number of shipments$

$Cost of shipments = 10 * 1200$

$Cost of shipments = 12000$

C.Calculate total cost of shipments and cost of returns

$Total Cost = Cost of shipments + Cost of returns$

$Total Cost = 12000 + 6750$

$Total Cost = 18750$

D. Calculate cost per unit

$Cost per unit = \frac{Total Cost}{Number of units shipped}$

$Cost per unit = \frac{18750}{3000}$

$Cost per unit = 6.25$