Bernie Lipscomb owns and manages a commercial cold-storage warehouse that has 100,000 cubic feet of storage capacity. Historically, he has charged customers a flat rate of $0.16 per pound per month for goods stored.

In the past two years, Lipscomb has become dissatisfied with the profitability of the warehouse operation. Despite the fact that the warehouse remains relatively full, revenues have not kept pace with operating costs. Recently, Lipscomb asked his accountant, Jenna Etheridge, to improve his understanding of how activity-based costing could help him revise the pricing formula. Etheridge has determined that most costs can be associated with one of four activities. Those activities and their related costs, volume measures, and volume levels for 2010 follow:

Source: Adapted from Harold P. Roth and Linda T. Sims, "Costing for Warehousing and Distribution," Management Accounting (August 1991), pp. 42–45. Reprinted from Management Accounting.
Copyright by Institute of Management Accountants, Montvale, NJ.
a. Based on the activity cost and volume data, determine the amount of cost assigned to the following customers, whose goods were all received on the first day of last month:

b. Determine the price to be charged to each customer under the existing pricing plan.
c. Determine the price to be charged using ABC, assuming Lipscomb would base the price on the cost determined in (a) plus a markup of 40 percent.
d. How well does Lipscomb's existing pricing plan capture the costs for providing the warehouse services?Explain.

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Activity Send/receive goods Store goods Move goods ldentify goods Cost $50,000 16,000 20,000 8,000 Monthly Volume Measure Weight in pounds Volume in cubic feet Volume in square feet Number of packages 500,000 80,000 5,000 500 Customer Barfield Glover Dozier Weight of Order in Pounds 40,000 40,000 40,000 Cubic Feet 3,200 800 1,400 Square Feet 1,100 600 1,900 Number of Packages 15 10 50