(Activity-based costing and pricing) Black West owns and manages a com¬ mercial cold-storage warehouse. He stores a vast variety of perishable goods for his customers. Historically, he has charged customers using a flat rate of $0.08 per pound per month for goods stored. His cold-storage warehouse has 100,000 cubic feet of storage capacity.

In the past two years, West 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, West approached his accountant, Kathy Kirby, about using activity-based costing to improve his understanding of the causes of costs and revise the pricing formula. Kirby has determined that most costs can be associated with one of four activities. Those activities and their related costs, volume mea¬ sures, and volume levels for 2006 follow:

C. Determine the price to be charged using ABC, assuming West would base the price on the cost determined in part

(a) plus a markup of 40 percent.

d. How well does West’s existing pricing plan capture the costs incurred to provide the warehouse services? Explain.

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Activity Send/receive goods Store goods Move goods Identify goods Cost $12,000 8,000 10,000 4,000 Monthly Volume Measure Weight in pounds-500,000 Volume in cubic feet-80,000 Volume in square feet-5,000 Number of packages-500 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, N.J. 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. Customer Jones Hansen Assad Weight of Order in Pounds Cubic Feet Square Feet Number of Packages 40,000 3,000 300 5 40,000 2,000 200 20 40,000 1,000 1,000 80 b. Determine the price to be charged to each customer under the existing pricing plan.