Ritz Company sells fine collectible statues and has implemented activity-based c

Question

Ritz Company sells fine collectible statues 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 and Rand 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 and shipped. The final cost pool is used for general operations and supervision of the department and the cost driver is the number of shipments. Information about the department is summarized below:

During the period, the Far East sales office generated 688 orders for a total of 6,000 items. These orders were shipped in 1,455 boxes. What amount of shipping department costs should be allocated to these sales?

Cost Pool Total Costs Cost Driver Annual Activity Packaging and shipping $167,500 Number of boxes shipped 20,400 boxes Final inspection $202,400 Number of individual items shipped 98,400 items General operations and supervision $80,800 Number of orders 9,200 orders

Explanation / Answer

167500/20400

202400 / 98400

approx $ 30331 is allocated to these sales

cost pool Cost per activity =a b a*b Packaging and shipping

167500/20400

8.2108 1455 11946.71 Final inspection

202400 / 98400

2.0569 6000 12341.4 General operations and supervision 80800/ 9200 8.7826 688 6042.43 30330.54

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