Problem - Cortez Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:
Order processing cost per order $ 6
Additional costs if order must be expedited (Rushed) $ 9
Customer technical support calls (Per call) $ 7
Relationship management costs (Per customer per year) $1,900
In addition to these costs, product costs amount to 80 percent of sales. In the prior year, Cortez had the following experience with one of its customers, Green Company:
Sales $50,000
Number of orders 170
Percent of orders marked rush 80
Calls to technical support 90
For the coming year, Cortez Corporation has told Green Company that it will be switched to an activity-based pricing system or it will be dropped as a customer. In addition to regular prices, Green will be required to pay:
Order processing per order $12
Additional handling costs if order marked rush per order $20
Technical support calls per call $22
How much is the additional revenue to be charged to the Green Company account if activity is the same as in the prior year?
$11,360
$1,360
$6,740
$8,640
Can you please show work? Thanks.