The 601 Blue Jean Company has decided to allocate the cost of its Warehouse and
ID: 2379819 • Letter: T
Question
The 601 Blue Jean Company has decided to allocate the cost of its Warehouse and Distribution Center to its customers using activity-based costing, in order to better assess profitability by customer. The warehouse manager determines that the only costs that are economically feasible to trace directly to the customer are outbound freight costs. The manager then decides that the following overhead cost pools should be allocated to customers using the following cost drivers:
Overhead Cost Pool
Cost Driver (Allocation Base)
Order Processing Department
Order Filling Department
Quality Control Department
Shipping Department
Number of individual orders processed for that customer
Number of line items on all pull-tickets for that customer
Number of cartons shipped to that customer
Number of cartons shipped to that customer
Following are relevant data for each overhead cost pool:
Order Processing Department
Total costs for this department
Total number of orders processed
Order Filling Department
Total costs for this department
Total number of line-items on all pull tickets
Quality Control Department
Total costs for this department
Total number of cartons shipped
Shipping Department
Total costs for this department
Total number of cartons shipped
$3,000,000
200,000
$4,000,000
4,000,000
$500,000
2,000,000
$7,500,000
2,000,000
Following is information pertaining to two customers:
7-9-11 Stores:
Sales revenue for the year
Number of orders
Number of pull ticket line-items
Number of cartons
Outbound freight costs
Men
Overhead Cost Pool
Cost Driver (Allocation Base)
Order Processing Department
Order Filling Department
Quality Control Department
Shipping Department
Number of individual orders processed for that customer
Number of line items on all pull-tickets for that customer
Number of cartons shipped to that customer
Number of cartons shipped to that customer
Explanation / Answer
A) Compute the overhead rates for each of the four overhead cost pools.
B) Calculate the amount of overhead that would be applied to 7-9-11 Stores
C) Calculate the amount of overhead that would be applied to Men
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