Marvins 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 $ 105,000 7,000 orders Loading truck Number of items 285,000 190,000 items Delivering merchandise Number of orders 126,000 7,000 orders Processing invoice Number of invoices 108,000 6,000 invoices Total overhead $ 624,000 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 $ 87,000 $ 97,000 Number of orders 67 290 Number of items 500 1,700 Number of invoices 15 190 Required: (a) What would the delivery charge for each customer be under the current policy of 10 percent of order value? (b) What would the activity-based costing system estimate as the cost of delivering to each customer? (Do not round your intermediate calculations.) --------------------------------------------------------------------------------------------------------- Tri-State Mill uses a special sander to finish lumber. Data on the sander and its usage follow: Cost Driver Rate Cost Driver Volume Resources used Energy $ 0.7 per machine-hour 6,000 machine-hours Repairs $ 23 per job 500 jobs Resources supplied Energy $ 8,300 Repairs $ 13,400 Sales revenue from finishing totaled $44,000. Required: (a) Prepare a traditional income statement. (Input all values as positive numbers.) (b) Prepare an activity-based income statement. (Input all values as positive numbers.) ----------------------------------------------------------------------------------------------- Gundy Press reports the following information about resources: Cost Driver Rate Cost Driver Volume Resources used Setups $ 245 per run 169 runs Clerical 26 per page 500 pages typed Resources supplied Setups $ 52,000 Clerical 20,000 Required: Compute unused setup and clerical resource capacity for Gundy Press. ------------------------------------------------------------------------------------------------- WSM Corporation is considering offering an air shuttle service between Sao Paulo and Rio de Janeiro. It plans to offer four flights every day (excluding certain holidays) for a total of 1,400 flights per year ( = 350 days 4 flights per day). WSM has hired a consultant to determine activity-based costs for this operation. The consultants report shows the following : Activity Activity Measure (cost driver) Unit Cost (cost per unit of activity) Flying and maintaining aircraft Number of flights $ 500 per flight Serving passengers Number of passengers $ 1 per passenger Advertising and marketing Number of promotions $ 40,000 per promotion WSM estimates the following annual information. With 4 advertising promotions, it will be able to generate demand for 40 passengers per flight at a fare of $150. The lease of the 60-seat aircraft will cost $2,000,000. Other equipment costs will be $1,000,000. Administrative and other marketing costs will be $600,000. Required: (a) What annual operating income can WSM expect from this new service? (b1) WSM is considering selling tickets over the Internet to save on commissions and other costs. It is estimated that the cost driver rate for flights would decrease by $100 as a result of Internet sales. Administrative and other marketing costs would increase by $1 million. WSM estimates that the added convenience would generate a 5 percent increase in demand. All other costs and fares would remain the same. What annual operating income can WSM expect from adopting Internet ticket sales? (c) Assume that WSM management decides not to adopt the Internet strategy. Instead, it is now considering a plan to sell tickets at two prices. An unrestricted ticket (good for travel at any time on any day) would sell for $ 175. A discount ticket, good for reservations made in advance, would sell for $75. Management estimates that it can sell 35,000 tickets (25 per flight) at the unrestricted airfare of $175. All other data remain the same. How many discounted tickets would WSM have to sell annually to earn operating income of $2,962,000? Assume that the annual number of flights remains at 1,400 and that the discounted tickets would be evenly divided across the 1,400 flights. ----------------------------------------------------------------------------------------------------------------- Gundy Press reports the following information about resources: Cost Driver Rate Cost Driver Volume Resources used Setups $ 140 per run 175 runs Clerical 20 per page 420 pages typed Resources supplied Setups $ 25,100 Clerical 10,600 Sales revenue totaled $40,000. Required: (a) Prepare a traditional income statement. (Input all values as positive numbers.) (b) Prepare an activity-based income statement. (Input all values as positive numbers.)