Ritz Company sells fine collectible statues and has implemented activity-based c
ID: 2654242 • Letter: R
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:
Cost Pool
Total Costs
Cost Driver
Annual Activity
Packaging and shipping
$167,200
Number of boxes shipped
23,900 boxes
Final inspection
$203,200
Number of individual items shipped
96,500 items
General operations and supervision
$84,200
Number of orders
8,900 orders
During the period, the Far East sales office generated 677 orders for a total of 6,010 items. These orders were shipped in 1,457 boxes. What amount of shipping department costs should be allocated to these sales?
Cost Pool
Total Costs
Cost Driver
Annual Activity
Packaging and shipping
$167,200
Number of boxes shipped
23,900 boxes
Final inspection
$203,200
Number of individual items shipped
96,500 items
General operations and supervision
$84,200
Number of orders
8,900 orders
Explanation / Answer
the annual cost of packaging and shipping is $167,200 for 23,900 boxes.
but for this period they packed only 1,457 boxes. the proportionate costs allocates to shipping department is
=167,200/23,900= $7 ($6.9958) per box
then, cost for 1,457 boxes are= 1457*6.9958= $10,193
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