Question

Nourse Enterprises makes a variety of products that it sells to other businesses. The company’s activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

Activity Cost Pool	Activity Measure	Activity Rate
Supporting assembly	Direct labor-hours (DLHs)	$	3.50	per DLH
Processing batches	Number of batches	$	114.05	per batch
Processing orders	Number of orders	$	66.95	per order
Serving customers	Number of customers	$	2,026.00	per customer

The cost of serving customers, $2,026.00 per customer, is the cost of serving a customer for one year. Koerner Corporation buys only one of the company’s products. The details of last year’s purchases of this product are listed below:

Number of units purchased		900	units
Number of batches		13	batches
Number of orders		4	order
Direct labor-hour requirement		0.10	DLHs per unit
Selling price	$	25.75	per unit
Direct materials cost	$	7.95	per unit
Direct labor cost	$	1.50	per unit

According to the ABC system, the customer margin for this customer this past year was closest to:

Multiple Choice

• $19,083.55

• $16,020.00

• $14,670.00

• $10,578.55

Answer 1

Answer 2

The correct answer is $ 10,578.55

Note :

Overhead Allocation:

1. Direct Labor Hours =0.10 per Unit * Number of Units

= 0.10 *900

= 90 Direct Labor Hours

2.

Activity Cost Pool	Activity Measure	Activity Rate		Activity	Cost ( Activity Rate * Activity)
Supporting assembly	Direct labor-hours (DLHs)	3.5	per DLH	90	315
Processing batches	Number of batches	114.05	per batch	13	1482.65
Processing orders	Number of orders	66.95	per order	4	267.8
Serving customers	Number of customers	2,026.00	per customer		2026
					4091.45

3. Customer Margin:

Revenue ( Sale Price * Units)	23,175.00
Less : Direct Material Cost ( Per Unit Cost * Number of Units)	7,155.00
Less : Direct Labor Cost ( Per Unit Cost * Number of Units)	1,350.00
Less : Overhead	4,091.45
Margin	10,578.55