Question

Howell sells specialized products produced by electronics companies to engineering firms. Howell sells these products at a price based on Howell’s purchase price. Howell’s customer cost hierarchy is as follows:

Activity level Cost Unit: 40% selling price

Batch: $200 per sales order

Customer: $500 per customer per year

Facility: $60,000 per year

Next year Howell plans to sell $4,000,000 of product to the 100 engineering firms they serve. They anticipate that each firm will place an average of 4 orders. Howell's predicted customer costs for next year are:

Answer 1

Howell's predicted customer costs for next year are:
Activity level cost	$         16,00,000
Ordering cost	$               80,000
(100 firms *4 order each *$200 per order)
Customer cost (100 firms*$500)	$               50,000
Facility	$               60,000
Total predicted customer cost	$         17,90,000
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