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Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $ 321,640 850,500 29,440 $ 1,201,580 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 16,500 Annual Driver Volume 365,500 items 31,500 orders 115 complaints 23 342 1 Burlington Contractors $ 21,000 58 313 2 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?

Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $ 321,640 850,500 29,440 $ 1,201,580 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 16,500 Annual Driver Volume 365,500 items 31,500 orders 115 complaints 23 342 1 Burlington Contractors $ 21,000 58 313 2 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 13E
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Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $ 321,640 850,500 29,440 $ 1,201,580 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 16,500 Annual Driver Volume 365,500 items 31,500 orders 115 complaints 23 342 1 Burlington Contractors $ 21,000 58 313 2 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?
Transcribed Image Text:Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $ 321,640 850,500 29,440 $ 1,201,580 The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months: Total number of items Number of delivery complaints Wagner Remodeling $ 16,500 Annual Driver Volume 365,500 items 31,500 orders 115 complaints 23 342 1 Burlington Contractors $ 21,000 58 313 2 Required: a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? b. What would the activity-based costing system estimate as the cost of delivering to each customer?
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