Digerolamo Enterprises makes a variety of products that it sells to other busine

Question

Digerolamo 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:

The cost of serving customers, $1,159.00 per customer, is the cost of serving a customer for one year.

Carlacci Corporation buys only one of the company’s products which Digerolamo Enterprises sells for $18.85 per unit. Last year Carlacci Corporation ordered a total of 1,500 units of this product in 4 orders. To fill the orders, 9 batches were required. The direct materials cost is $8.15 per unit and the direct labor cost is $2.60 per unit. Each unit requires 0.15 DLHs.

According to the ABC system, the total cost of the activity "Processing batches" for this customer this past year was closest to:

$59.35

$1,704.15

$1,763.50

$189.35

Activity Cost Pool Activity Measure Activity Rate Supporting assembly Direct labor-hours (DLHs) $ 3.55 per DLH Processing batches Number of batches $ 189.35 per batch Processing orders Number of orders $ 59.35 per order Serving customers Number of customers $ 1,159.00 per customer

Explanation / Answer

According to the ABC system, the total cost of the activity "Processing batches" for this customer this past year was closest to

Processing batches cost = 189.35*9 = 1704.15

so answer is b) $1704.15

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