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 674 orders for a total of 6,090 items. These orders were shipped in 1,316 boxes. What amount of shipping department costs should be allocated to these sales?

Explanation / Answer

Shipping Department costs to be allocated:

Packaging & Shipping Cost = $166200 * 1316/22700 = $9635.21

Final Inspection = $199000 * 6090/99400 = $12192.25

General Operations & Supervision = $82500 * 674/8000 = $6950.63

Total Allocated Cost = $9635.21 + $12192.25 + $6950.63 = $28778.09

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