Marvin's Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow:

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?
c. How could Marvin's use the information identified by the new costing method to managecosts?

Transcribed Image Text:

Cost Driver Volume Activity Cost Driver Cost Driver Volume Processing order.... Number of orders 75,000 5,000 orders Loading truck . ...Number of item:s Delivering merchandise. Number of orders Processing invoice Number of 150,000 100,000 items 90,000 5,000 orders invoices 72,000 4,000 invoices $387000 City Diner Le Chien Chaud $75,000 52 600 12 $90,000 110 1,500 150 Number of items. ..