Rupert’s Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. The firm adds 6 percent to the cost of the appliances to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. The finance team at RAW has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow: 

Two of Rupert’s customers are McLean Designs and Neveux Appliances. 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 6 percent of order value?

b. What would the activity-based costing system estimate as the cost of delivering to each customer?

c. How could Rupert’s use the information identified by the new costing method to manage costs?  

Transcribed Image Text:

Activity Processing order. Loading truck.. Delivering order.. Billing....... Total overhead. Cost Driver Number of orders Number of items Number of orders Number of invoices Activity Cost $ 90,000 180,000 108,000 70,000 $448,000 Cost Driver Volume 3,000 orders 60,000 items 3,000 orders 2,500 invoices