ZZZ Corp. manufactures foam beds for several retailers.   Total sales are split fairly evenly between small retailers and big box stores, and the company receives the same price from both types of retailers. Management believes activity levels within the smaller retailers justify adding more resources, including a new order clerk and an additional salesperson.  Adam, head of sales disagrees with this strategy.  Using the data provided, complete the following;

1. Assign costs to the two customer groups using activity-based costing (ABC)
2. Write a memo to management with YOUR recommendation, include in your memo, why the company should be using ABC.

Small Retailers:

Total beds purchased (units)             70,000

Number of retailers                            265

Number of orders placed                   2,250

Number of sales calls                          525

Total manufacturing costs                  $42,000,000

Total order filling costs                       $1,414,000

Total sales force costs                        $700,000

Big Box Stores:

Total beds purchased (units)              75,000

Number of retailers                            10

Number of orders placed                   30

Number of sales calls                          12

Total manufacturing costs                  $45,000,000

Total order filling costs                       $1,515,000

Total sales force costs                        $750,000