Johnson Company produces office equipment for 16 major buyers. Of the 16 custome
ID: 2572308 • Letter: J
Question
Johnson Company produces office equipment for 16 major buyers. Of the 16 customers one accounts for 50 percent of the sales, with the remaining 15 accounting for the rest of the sales. The 15 smaller customers purchase equipment in roughly equal quantities. Data concerning Johnson's customer activity follow: Units purchased Orders placed Number of sales calls Direct manufacturing cost 50,000 294 224 $750,000 50,000 26 $750,000 Order-filling costs total S270,000 and are driven by orders placed. Sales-force costs are $300,000 and are driven by the number of sales calls. Determine the total cost for one of the 15 smaller customers if these costs are assigned using activity-based costing. Required:Explanation / Answer
Total order filling costs = 270,000
Order filling costs are driven by orders placed.
No of orders = 6 + 294 = 300
Order filling cost per oder = 270,000 / 300 = 900
Order fiiling costs for 15 small customers = 294 * 900 = 264,600
Sales forecasts costs = 300,000
Sales forecasts are driven by number of sales calls
No of sales calls = 26 +224 = 250
Cost per sales call = 300,000 / 250 = 1,200
Sales force calls for 15 small customers = 224 * 1,200 = 268,800
Direct manufacturing cost for 15 small customers = 750,000
Total costs for 15 small customers = Direct manufacturing costs + Order filling costs + Sales forece costs
= 750,000 + 264,600 + 268,800 = 1,283,400
Total costs for one of the 15 customers = 1,283,400 / 15 = 85,560.
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