Exercise 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, LO7-5] Foa

Question

Exercise 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, LO7-5]

Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:

The company just completed a single order from Interstate Trucking for 2,700 custom seat cushions. The order was produced in four batches. Each seat cushion required 0.7 direct labor-hours. The selling price was $142.00 per unit, the direct materials cost was $112 per unit, and the direct labor cost was $14.20 per unit. This was Interstate Trucking’s only order during the year.

Required:

Calculate the customer margin on sales to Interstate Trucking for the year.

Activity Cost Pool Activity Measure Activity Rate Supporting direct labor Number of direct labor-hours $ 14 per direct labor-hour Batch processing Number of batches $ 90 per batch Order processing Number of orders $ 283 per order Customer service Number of customers $ 2,639 per customer

Explanation / Answer

Calculate customer margin :

Sales (2700*142) 383400 Less : Costs Direct material (2700*112) (302400) Direct labour (2700*14.20) (38340) Supporting direct labour (2700*.70*14) (26460) Batch cost (90*4) (360) Order processing (283) Customer service (2639) (370482) Customer margin 12918

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