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:

Cost Pool Total Costs Cost Driver Annual Activity

Packaging and shipping $164,700 Number of boxes shipped 23,380 boxes

Final inspection $199,800 Number of individual items shipped 97,500 items

General operations & supervision $82,200 Number of orders 9,700 orders

During the period, the Far East sales office generated 677 orders for a total of 6,060 items. These orders were shipped in 1,453 boxes. What amount of shipping department costs should be allocated to these sales?

Explanation / Answer

Packaging and shipping cost per box = $164700/23380 boxes = 7.044482463 per box

Final inspection cost per item = $199800/97500 = 2.049230769 per item

General operation & supervision cost per order = $82200/9700 = $8.474226804 per order

Amount of shipping department cost allocated to these sales = ($7.044482463*1453 boxes) + ($2.049230769 * 6060 items) + ($8.474226804 * 677 orders) = $28391.02301

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