ScholfieldEnterprises makes a variety of products that it sells to other busines

Question

ScholfieldEnterprises 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, $1,191.00 per customer, is the cost of serving a customer for one year.

Latif Corporation buys only one of the company’s products which ScholfieldEnterprises sells for $15.60per unit. Last year Latif Corporation ordered a total of 1,100units of this product in 2orders. To fill the orders, 7batches were required. The direct materials cost is $7.85per unit and the direct labor cost is $1.90per unit.Each unit requires 0.10DLHs.

According to the ABC system, the total overhead cost for this customer this past year was closest to:

Activity Cost Pool Activity Measure Activity Rate Supporting assembly Direct labor-hours (DLHs) $ 6.55 per DLH Processing batches Number of batches $ 138.20 per batch Processing orders Number of orders $ 52.60 per order Serving customers Number of customers $ 1,191.00 per customer

Explanation / Answer

According to the ABC system, the total overhead cost for this customer this past year was closest to:

Supporting assembly (1100*.1*6.55) 720.50 Processing batches (138.20*7) 967.40 Processing orders (52.60*2) 105.20 Serving customers 1191 Total overhead cost 2984.10

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