First Décor has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability. Results for the year appear below:
$\begin{array}{lrlr}\hline \text { Cost Pool } & \text { Cost } & \text { Cost Driver } & \text { Quantity } \
\hline \text { Processing electronic orders } & \$ 400,000 & \text { Number of orders } & 40,000 \
\text { Processing non-electronic orders } & 120,000 & \text { Number of orders } & 8,000 \
\text { Picking orders } & 240,000 & \text { Number of different products ordered } & 120,000 \
\text { Packaging orders } & 180,000 & \text { Number of items ordered } & 150,000 \
\text { Returns } & 15,000 & \text { Number of returns } & 3,000
\end{array}$
What is the cost allocation for two Internet orders for 22 items with 7 different products and one return?

Question

Quizplus · Accepted Answer

The cost allocation for two Internet orders for 22 items with 7 different products and one return is $65.40. This is calculated as follows:Processing electronic orders: 2 orders x $400,000 / 40,000 orders = $20Processing non-electronic orders: 0 orders x $120,000 / 8,000 orders = $0Picking orders: 7 different products x $240,000 / 120,000 different products = $14Packaging orders: 22 items x $180,000 / 150,000 items = $31.68Returns: 1 return x $15,000 / 3,000 returns = $5Total cost allocation: $20 + $0 + $14 + $31.68 + $5 = $65.40

First Décor Has Analyzed the Indirect Costs Associated with Servicing