Question

This is a cost allocation problem for a merchandising firm. Since merchandising firms do not have overhead, you must allocate "support costs" instead of "overhead costs." Also, the allocations in this problem are to customer groups, not to an individual products or jobs. Nonetheless, the allocation process is th same. Just follow the three steps used in the lectures: 1. Read the problem and question carefully to determine the cost driver 2. Compute the "overhead" rate: budgeted support costs/budgeted driver 3. Allocate to the customer group specified in the question: overhead rate X driver for the specific customer group. Remember that with activity-based costing (Part B), there is more than one driver and more than one rate, and the allocation to a customer group is the sum of several individual allocations. Each part of the problem is worth five points, and you get five tries for each part. Pharmax Distributors speciaizes in the distribution of pharmaceutical products at the retail level. Pharmax's oustomer base is comprised of three main retail groups: general supermarket chains, large drugstore chains, and small, single-store "Ma & Pa" pharmacies. To evaluate the relative profitability of each customer group, Pharmax plans to use an allocation system that recognizes the relative demands that these groups place on the company's resources. Parmax's chief accountant examined the firm's support costs and activities and collected the fol lowing data for a typical operating period: Support Activity Order processing Line item processing Store deliveries Carton handling Budgeted Cost $80,000 $58,000 $75,000 $64,000 Total Cost Driver 1,830 customer orders 22,760 line items 1,620 deliveries 82,300 cartons shipped She also gathered the following data for a typical operating period: Customer orders Line items Deliveries Cartons shipped General Supermarket 140 1,960 110 35,200 Drugstore Chains 390 3,900 310 27,900 Ma & Pa 1,300 16,900 1,200 19,200 REQUIRED [ROUND ALL ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.J Part A (5 tries; S points) If Pharmax uses a single-driver system to allocate its support costs, with number of customer orders as the single driver, how much would be allocated to its Drugstore Chain customers? Suemt Ane Tries oys Part B (5 tries; 5 points) Sutmt Ans Tries 0/5 If Pharmax uses an activity-based costing system to allocate its overhead costs, how much would be allocated to its General Supermarket customers?

Answer 1

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