ACTIVITY-BASED CUSTOMER COSTING
Underwood Company produces sofas for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60 percent of the sofas produced. The 19 smaller customers purchase sofas in approxi- mately equal quantities, where the orders are about the same size. Data concerning Underwood's customer activity are as follows:
| |
Large Retailer |
Smaller Retailers |
|
Units purchased
|
24,000
|
16,000
|
|
Orders placed
|
8
|
800
|
|
Number of sales calls
|
4
|
196
|
|
Manufacturing costs
|
$14,400,000
|
$9,600,000
|
|
Order filling costs allocated*
|
$484,800
|
$323,200
|
|
Sales force costs allocated*
|
$240,000
|
$160,000
|
* Allocated based on sales volume.
Currently, customer-driven costs are assigned to customers based on units sold, a unit- level driver.
Required:
Assign costs to customers by using an ABC approach.