Question

Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company's activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates: Activity Cost Pool Supporting direct labor Batch processing Order processing Customer service Activity Measure Number of direct labor-hours Number of batches Number of orders Number of customers Activity Rate $ 12 per direct labor-hour $ 99 per batch $ 278 per order $ 2,616 per customer The company just completed a single order from Interstate Trucking for 1,800 custom seat cushions. The order was produced in five batches. Each seat cushion required 0.7 direct labor-hours. The selling price was $141.40 per unit, the direct materials cost was $103 per unit, and the direct labor cost was $15.00 per unit. This was Interstate Trucking's only order during the year. Required: Calculate the customer margin on sales to Interstate Trucking for the year. Interstate Trucking Customer Margin-ABC Analysis Costs: 0 Customer margin $

Answer 1

Ans.	Interstate Trucking
	Customer Margin - ABC Analysis
	Particulars	Amount	Amount
	Sales   (A)		$254,520
	Less: Costs:
	Direct materials	$185,400
	Direct labor	$27,000
	Supporting direct labor	$15,120
	Batch processing	$495
	Order processing	$278
	Customer service	$2,616
	Total Costs (B)		$230,909
	Customer Margin (A - B)		$23,611
	Customer margin percentage = Customer margin / Sales * 100
	$23,611 / $254,520 * 100
	9.28%
	*WORKING   NOTES:
	Sales   =   Selling price per unit * Number of custom seat cushions
	$141.40 * 1,800   =    $254,520
	Direct materials    =   Direct materials per unit * Number of custom seat cushions
	$103 * 1,800   =    $185,400
	Direct labor    =   Direct labor per unit * Number of custom seat cushions
	$15 * 1,800   =    $27,000
	Supporting direct labor is based on direct labor hours, we have given the direct labor hours per unit,
	so we need to calculate the total direct labor hours.
	Total direct labor hours = Direct labor hours per unit * Number of units
	0.7 * 1,800 = 1,260 hours
	Supporting direct labor   = Total direct labor hours * Direct labor rate
	1,260 * $12   =   $15,120
	Batch processing   =   Number of batches * Rate per batch
	5 * $99   = $495
	Order processing   =   Rate per order * Number of orders
	$278 * 1   =   $278
	Customer service   = Number of customers * Rate per customer
	1 * $2,616 =   $2,616