Dormirbien Company produces mattresses for 20 retail outlets. Of the 20 retail o

Question

Dormirbien Company produces mattresses for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60% of the mattresses produced. The 19 smaller customers purchase mattresses in approximately equal quantities, where the orders are about the same size. Data concerning Dormirbien's customer activity are as follows:

Currently, customer-driven costs are assigned to customers based on units sold, a unit-level driver.

Required:

Assign costs to customers by using an ABC approach. Round activity rates to at least three decimals and round activity costs to the nearest dollar.

Large Retailer Smaller Retailers Units purchased 36,000 24,000 Orders placed 12 1,200 Number of sales calls 6 294 Manufacturing costs $14,400,000 $9,600,000 Order filling costs allocated* $484,800 $323,200 Sales force costs allocated* $240,000 $160,000 *Currently allocated on sales volume (units sold).

Explanation / Answer

No of Activities Cost No of Order Placed (1200+12) 1212 808000 666.667 $ per order Number of sales calls Number of sales calls (294+4) 300 400000 1333.333 per sales call Large customer Smaller Retailers Order filling costs @666.667 8000 800000 Sales force cost@1333.333 8000 392000 Cost assignment 16000 1192000

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