Case Scenario:
Rand 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:
Cost Pool Total Costs Cost Driver Annual Activity
Packaging and shipping $170,000 Number of boxes shipped 25,000 boxes
Final inspection $200,000 Number of individual items shipped 100,000 items
General operations and supervision $85,000 Number of orders 10,000 orders
A new customer orders a single item (which obviously can be shipped in a single box). What is the shipping department cost that will be allocated to this order?