Exercise 10-23 Activity-Based Costing of Customers (L.O. 3, 4)

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:

		Cost Driver Volume
Activity	Cost Driver	Cost			Driver Volume
Processing order	Number of orders	$	50,000		5,000	orders
Loading truck	Number of items		100,000		100,000	items
Delivering merchandise	Number of orders		60,000		5,000	orders
Processing invoice	Number of invoices		48,000		4,000	invoices
Total overhead		$	258,000

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

	City Diner			Le Chien Chaud
Order value	$	50,000		$	60,000
Number of orders		52			110
Number of items		600			1,500
Number of invoices		12			150

Required:
(a)	What would the delivery charge for each customer be under the current policy of 10 percent of order value? (Omit the "$" sign in your response.)

	Delivery Charge
City diner	$
Le chien chaud	$

(b)	What would the activity-based costing system estimate as the cost of delivering to each customer? (Omit the "$" sign in your response.)

	Delivery Cost
City dine	$
Le chien chaud	$

(c)	Marvin can use this information to change the way he prices delivery service.
	(Click to select)FalseTrue