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Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of

Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them:

Activity Cost Driver Annual Cost Annual Driver Volume
Picking order Number of items $ 303,660 361,500 items
Delivering order Number of orders 678,500 29,500 orders
Handling complaints Number of complaints 38,440 155 complaints
Total delivery cost $ 1,020,600

The intern selected two customers, who were frequent customers, to use as an illustration of the system: Wagner Remodeling and Burlington Contractors. The intern collected the following information on these two customers for the most recent six months:

Wagner Remodeling Burlington Contractors
Total order value (before delivery charge) $ 14,500 $ 17,000
Number of orders 19 50
Total number of items 326 309
Number of delivery complaints 1 6

Required:

What would the delivery charge for each customer be under the current policy of 10 percent of order value?

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

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