Ritz Company sells fine collectible statues and has implemented activity-based c
ID: 2623128 • Letter: R
Question
Ritz Company sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping and Rand has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected and shipped. The final cost pool is used for general operations and supervision of the department and the cost driver is the number of shipments. Information about the department is summarized below:
During the period, the Far East sales office generated 684 orders for a total of 6,120 items. These orders were shipped in 1,474 boxes. What amount of shipping department costs should be allocated to these sales?
Cost Pool Total Costs Cost Driver Annual Activity Packaging and shipping $164,700 Number of boxes shipped 24,000 boxes Final inspection $200,600 Number of individual items shipped 98,900 items General operations and supervision $84,300 Number of orders 8,100 ordersExplanation / Answer
Packaging and shipping cost per box = total cost / annual activity = 164,700 / 24,000 = 6.6825
Final inspection cost per item = total cost / annual activity = 200,600 / 98,900 = 2.028311
General operations and supervision cost per order = total cost / annual activity = 84,300 / 8,100 = 10.40741
Total shipping department cost = (Packaging and shipping cost per box * no of boxes) + (Final inspection cost per item * no of items) + (General operations and supervision cost per order * no of orders)
= (6.6825 * 1,474) + (2.028311 * 6,120) + (10.40741 * 684) = $ 29,647.26
Answer: $ 29,647.26
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