Question

Cumberland Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:
Activity Cost Pool Activity Measure Activity Rate
Supporting assembly Direct labor-hours (DLHs) $ 5.65 per DLH
Processing batches Number of batches $ 146.65 per batch
Processing orders Number of orders $ 80.05 per order
Serving customers Number of customers $ 2,663.00 per customer
The cost of serving customers, $2,663.00 per customer, is the cost of serving a customer for one year.

Steckman Corporation buys only one of the company’s products which Cumberland Enterprises sells for $22.05 per unit. Last year Steckman Corporation ordered a total of 1,200 units of this product in 4 orders. To fill the orders, 8batches were required. The direct materials cost is $7.65 per unit and the direct labor cost is $5.20 per unit. Each unit requires 0.30 DLHs.

According to the ABC system, the customer margin for this customer this past year was closest to:

Multiple Choice

$20,269.60

$4,849.60

$17,280.00

$11,040.00

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

Activity Cost Pool Activity Measure Activity Rate

Supporting assembly Direct labor-hours (DLHs) $ 5.65 per DLH

Processing batches Number of batches $ 146.65 per batch

Processing orders Number of orders $ 80.05 per order

Serving customers Number of customers $ 2,663.00 per customer

The cost of serving customers, $2,663.00 per customer, is the cost of serving a customer for one year.

Steckman Corporation buys only one of the company’s products which Cumberland Enterprises sells for $22.05 per unit. Last year Steckman Corporation ordered a total of 1,200 units of this product in 4 orders. To fill the orders, 8batches were required. The direct materials cost is $7.65 per unit and the direct labor cost is $5.20 per unit. Each unit requires 0.30 DLHs.

First, we need to calculate the total cost:

Total cost= direct material + direct labor + manufacturing overhead

Direct material= 7.65* 1,200= 9,180

Direct labor= 5.20*1,200= 6,240

Overhead= 6,190.4

Supporting assembly: $ 5.65*(1200*0.30)= $2,034

Processing batches: 146.65*8= 1,173.2

Processing orders: 80.05*4= 320.2

Serving customers:  2,663.00

Total cost= 21,610.4

Sales= 1,200*22.05= 26,460

Customer margin= 26,460 - 21,610.4= $4,849.6