Ritz Company sells fine collectible statues and has implemented activity-based c

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 660 orders for a total of 6,120 items. These orders were shipped in 1,379 boxes. What amount of shipping department costs should be allocated to these sales?

Cost Pool Total Costs Cost Driver Annual Activity Packaging and shipping $163,500 # of boxes shipped # of boxes shipped 20,400 boxes Final inspection $195,000 # of individual items shipped # of individual items shipped 96,000 items General operations and supervision $80,000 # of orders # of orders 8,500 orders

Explanation / Answer

During the period, the amount of shipping department costs allocated to these sales are:

Cost pool Cost per Cost driver Activity during the period total costs allocated toFar East Sales Office Packaging and shipping $8.0147 / box shipped 1,379 boxes shipped $11052.27 Final inspection $2.0312 / individual items shipped 6,120 individual items shippped $12430.95 General operations and supervision $9.412 / orders 660 orders $6211.92

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