ACTIVITY-BASED CUSTOMER COSTING Underwood Company produces sofas for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60 percent of the sofas produced. The 19 smaller customers purchase sofas in approximately equal quantities, where the orders are about the same size. Data concerning Underwood’s customer activity are as follows:

Large Retailer Smaller Retailers Units purchased 24,000 16,000 Orders placed 8 800 Number of sales calls 4 196 Manufacturing costs $14,400,000 $9,600,000 Order filling costs allocated* $484,800 $323,200 Sales force costs allocated* $240,000 $160,000

* Allocated based on sales volume.

Currently, customer-driven costs are assigned to customers based on units sold, a unitlevel driver.

Required:

Assign costs to customers by using an ABC approach.

Cornerstone Exercise