The 601 Blue Jean Company has decided to allocate the cost of its Warehouse and
ID: 2566096 • 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:
Following are relevant data for each overhead cost pool:
Following is information pertaining to two customers:
Required:
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's Large & Big Stores.
D) Explain (in one or two sentences) or show (by calculation) how your answers to Parts (B) and (C) would change if the company combined Quality Control and Shipping into one overhead cost pool, and allocated overhead for this cost pool to customers based on the number of cartons shipped to that customer.
A detailed step-by-step on how to find each requirement would be super helpful! The amount of info is overwhelming, not sure what's relevant or where to use what. Thanks!
Overhead Cost Pool Cost Driver (Allocation Base) Order Processing Department Number of individual orders processed for that customer Order Fufilling Department Number of line items on all pull-tickets for that customer Quality Control Department Number of cartons shipped to that customer Shipping Department Number of cartons shipped to that customerExplanation / Answer
a) Cost pool Overhead Costs Allocation Base Overhead Rate Order Processing $3,000,000 200,000 Number of orders $15 Per order Order filling $4,000,000 4,000,000 Number of pull ticket line-items $1 per line item Quality Control $500,000 2,000,000 Number of cartons $0.25 per carton Shipping $7,500,000 2,000,000 Number of cartons $3.75 per carton b) Cost pool Overhead rate Allocation Base Overhead applied Order Processing $15 500 Number of orders $7,500 Per order Order filling $1 100,000 Number of pull ticket line-items $100,000 per line item Quality Control $0.25 50,000 Number of cartons $12,500 per carton Shipping $3.75 50,000 Number of cartons $187,500 per carton Total $307,500 c) Cost pool Overhead rate Allocation Base Overhead applied Order Processing $15 250 Number of orders $3,750 Per order Order filling $1 20,000 Number of pull ticket line-items $20,000 per line item Quality Control $0.25 40,000 Number of cartons $10,000 per carton Shipping $3.75 40,000 Number of cartons $150,000 per carton Total $183,750 d) The answers to Parts (B) and (C) would not change at all a) Cost pool Overhead Costs Allocation Base Overhead Rate Order Processing $3,000,000 200,000 Number of orders $15 Per order Order filling $4,000,000 4,000,000 Number of pull ticket line-items $1 per line item Quality Control & shipping $8,000,000 2,000,000 Number of cartons $4 per carton b) Cost pool Overhead rate Allocation Base Overhead applied Order Processing $15 500 Number of orders $7,500 Per order Order filling $1 100,000 Number of pull ticket line-items $100,000 per line item Quality Control & shipping $4 50,000 Number of cartons $200,000 per carton Total $307,500 c) Cost pool Overhead rate Allocation Base Overhead applied Order Processing $15 250 Number of orders $3,750 Per order Order filling $1 20,000 Number of pull ticket line-items $20,000 per line item Quality Control & shipping $4 40,000 Number of cartons $160,000 per carton $183,750
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