Exercise 6-9 (30 minutes)
1. Total revenue received:
City
General
County
General
Cost of goods sold to the hospital (a) ………..
$30,000
$30,000
Markup percentage ……………………………….
× 5%
× 5%
Markup in dollars (b) ……………………………..
$1,500
$1,500
Revenue received from hospitals (a) + (b) ….
$31,500
$31,500
2. Activity Rates:
Activity Cost Pool
(a)
Estimated
Overhead
Cost
(b)
Expected Activity
(a) ÷ (b)
Activity rate
Customer deliveries …………
$400,000
5,000
deliveries
$80.00
per delivery
Manual order processing …..
$300,000
4,000
orders
$75.00
per manual order
Electronic order processing .
$200,000
12,500
orders
$16.00
per electronic order
Line item picking …………….
$500,000
400,000
line items
$1.25
per line item picked
Exercise 6-11 (continued)
3. Computation of the overhead costs for the Indus Telecom order:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Direct labor
support ………….
$15.50
per DLH
50
DLHs*
$ 775
Order processing ..
$305
per order
1
orders
305
Customer support .
$1,275
per customer
1
customer
1,275
Total ………………..
$2,355
*0.5 DLH per unit × 100 units = 50 DLHs
4. The customer margin for Indus Telecom is computed as follows:
Customer Margin—ABC Analysis
Sales (100 units × $295 per unit) ……………..
$29,500
Costs:
Direct materials ($264 per unit × 100 units) .
$26,400
Direct labor ($25 per DLH × 0.5 DLH per
unit × 100 units) ………………………………..
1,250
Direct labor support overhead (see part 3
above) ……………………………………………..
775
Order processing overhead (see part 3
above) ……………………………………………..
305
Customer support overhead (see part 3
above) ……………………………………………..
1,275
30,005
Customer margin …………………………………….
$( 505)
