Question

Activity-Based Costing: Selling and Administrative Expenses Jungle Junior Company manufactures and sells outdoor play equipment. Jungle Junior uses activity-based costing to determine the cost of the sales order processing and the customer return activity. The sales order processing activity has an activity rate of $20 per sales order, and the customer return activity has an activity rate of $100 per return. Jungle Junior sold 2,500 swing sets, which consisted of 750 orders and 80 returns. a. Determine the total sales order processing and customer return activity cost for swing sets. $ b. Determine the per-unit sales order processing and customer return activity cost for swing sets. Round your answer to the nearest cent. $ per unit

Answer 1

Answer: (a.) Sales order processing = $ 15000

Customer return activity = $8000

(b.)  Per-unit sales order processing = $ 6

Per-unit customer return activity cost for swing sets = $ 9.20

Explanation:

Total activity cost is given as :

Total activity cost = Sales order processing + Customer return activity

∵ Sales order processing = No. of sales order × Activity rate

Sales order processing = 750×20 = $15000

∵ Customer return activity = No. of sales return  × Activity rate

Customer return activity = 80×100 = $8000

∴ Total activity cost =  $15000 + $8000 = $23000

Now,

Sales order processing = $15000

No. of outdoor equipment sold = 2500

Sales order processing per unit  = $15000 ÷ $2500 = $6

Customer return activity = $8000

No. of outdoor equipment sold = $2500

Customer return activity cost for swing sets = $8000 ÷ $2500 = 3.20

∴Total activity cost = $6 + $3.20 = $9.20