Kramer Corporation is an office supplier dealing in a number of different produc

Question

Kramer Corporation is an office supplier dealing in a number of different products. It currently allocates its ordering and delivery costs to its residential and business customer groups on the basis of order value. However, the company has recently decided to implement activity-based costing starting in 20x4 to assign these costs to customers. Key data for 20X3 are as follows: Activity Volume Business $3,500,000 $2,910,000 $6,410,000 Total Activity Volume Activity Volume Activity Cost Activity Activity Base Residential Sales (order value) Order processing Generating sales Sales follow-up Processing change orders Delivery $ 951,000 No. of orders 753,000 807,000 57,000 1,215,823 5,930 2,060 102 198 2,370 3,840 388 8,300 5,900 490 No. of sales calls No. of follow-ups No. of change 202 400 orders No. of deliveries 5,950 4.550 10,500 Total $3,783,823 Kramer has 2,060 residential customers and 510 business customers Required 1. Compute the cost per customer for residential and business customers for 20X3, using the current system of cost allocation. (Do not round intermediate calculations. Round "Cost per customer" to 2 decimal places and the rest to the nearest whole dollar amount.) ResidentialBusiness Ordering and delivery costs applied Number of customers Cost per customer 2. Assume that the 20x3 data will hold for 20X4. Compute the cost per customer for residential and business customers for 20X4 using the proposed system of cost allocation. In doing so, calculate the overhead allocation rate for each activity, and use these rates to assign costs to the two customer groups. (Round intermediate calculations and your answers to 2 decimal places.) Activity Cost P Activity Rate Order processing Getting sales Sales follow-up Processing change orders Delivery per order per sales call per follow-up per change order per delivery Residential Businesss Ordering and delivery costs applied Number of customers Cost per customer

Explanation / Answer

1 Residential Business Ordering and delivery costs applied 2066050 1717773 Number of customers 2060 510 Cost per customer 1002.94 3368.18 2 Activity rate Order processing 114.58 Getting sales 127.63 Sales follow-up 1646.94 Processing change orders 142.50 Delivery 115.79 Residential Business Ordering and delivery costs applied 1827530.58 1956296.02 Number of customers 2060 510 Cost per customer 887.15 3835.87

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