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The 601 Blue Jean Company has decided to allocate the cost of its Warehouse and

ID: 2379819 • Letter: T

Question

The 601 Blue Jean Company has decided to allocate the cost of its Warehouse and Distribution Center to its customers using activity-based costing, in order to better assess profitability by customer. The warehouse manager determines that the only costs that are economically feasible to trace directly to the customer are outbound freight costs. The manager then decides that the following overhead cost pools should be allocated to customers using the following cost drivers:

Overhead   Cost Pool

Cost   Driver (Allocation Base)

Order Processing Department

Order Filling Department

Quality Control Department

Shipping Department

Number of individual orders   processed for that customer

Number of line items on all   pull-tickets for that customer

Number of cartons shipped to that   customer

Number of cartons shipped to that   customer

Following are relevant data for each overhead cost pool:

Order   Processing Department

Total costs for this department

Total number of orders processed

Order   Filling Department

Total costs for this department

Total number of line-items on all   pull tickets


  Quality Control Department

Total costs for this department

Total number of cartons shipped

Shipping   Department

Total costs for this department

Total number of cartons shipped

$3,000,000

200,000

$4,000,000

4,000,000

$500,000

2,000,000

$7,500,000

2,000,000


Following is information pertaining to two customers:

7-9-11   Stores:

Sales revenue for the year

Number of orders

Number of pull ticket line-items

Number of cartons

Outbound freight costs

Men

  

Overhead   Cost Pool

     

Cost   Driver (Allocation Base)

     

Order Processing Department

  

Order Filling Department

  

Quality Control Department

  

Shipping Department

     

Number of individual orders   processed for that customer

  

Number of line items on all   pull-tickets for that customer

  

Number of cartons shipped to that   customer

  

Number of cartons shipped to that   customer

  

Explanation / Answer

A) Compute the overhead rates for each of the four overhead cost pools.

B) Calculate the amount of overhead that would be applied to 7-9-11 Stores

C) Calculate the amount of overhead that would be applied to Men