Question

Mustaine Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer activities and costs for the previous quarter are found below: JIT Non-JIT Sales Orders 300 20 Sales Calls 25 25 Service Calls 150 75 Average Order Size 100 1,000 Manufacturing cost/unit $50 $50 Customer Costs: Processing Sales Orders $200,000 Selling Goods $120,000 Servicing Goods $150,000 Total $470,000. Calculate the activity rate for processing sales orders.
(A) $625 per order
(B) $889 per order
(C) $182 per order
(D) $667 per order
(E) $1.47 per order

Answer 1

Answer:

(A) $625 per order

Explanation:

Processing a sales order shall be based on the number of orders processed.

As the total orders processed are:

JIT = 300

Non JIT = 20

Therefore, total orders = 320

Total cost to be allocated = $200,000 that is the order processing cost of previous quarter.

Cost per order shall be $\frac{200,000}{320}$

= $625 per order.

Note: The order size do not matter.

Therefore, correct option is:

(A) $625 per order