Question

International Gems sells fine jewelry and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping. International has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected. The final cost pool is used for general operations of the department and the cost driver is the number of orders. Information about the activities is summarized below:
Cost Pool Total Costs Cost Driver Annual Activity
Packaging and shipping $164,700 Number of boxes shipped 24,000 boxes
Final inspection $200,600 Number of individual items shipped 98,900 items
General operations and supervision $84,300 Number of orders 8,100 orders
During the period, the Far East sales office generated 684 orders for a total of 6,120 items. These orders were shipped in 1,474 boxes. What amount of shipping department costs should be allocated to these sales?

Answer 1

Answer:

Total shipping department cost = $29,647.26

Explanation:

Total shipping department cost = (Packaging and shipping cost per box * no of boxes) + (Final inspection cost per item * no of items) + (General operations and supervision cost per order * no of orders)

- Final inspection cost per item = Total cost / Annual activity

Final inspection cost per item = 200,600 / 98,900

Final inspection cost per item = 2.028311

- General operations and supervision cost per order = Total cost / Annual activity

General operations and supervision cost per order = 84,300 / 8,100

General operations and supervision cost per order = 10.40741

- Packaging and shipping cost per box = Total cost / Annual activity

Packaging and shipping cost per box = 164,700 / 24,000

Packaging and shipping cost per box = 6.6825  

Hence, Total shipping department cost = (6.6825 * 1,474) + (2.028311 * 6,120) + (10.40741 * 684)

Total shipping department cost = 9850.005 + 12413.263 + 7118.668

Total shipping department cost = $29,647.26