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:
$\begin{array}{lrlr}\hline \text { Cost Pool } & \text { Cost } & \text { Cost Driver } & \text { Quantity } \
\hline \text { Processing electronic orders } & \$ 400,000 & \text { Number of orders } & 40,000 \
\text { Processing non-electronic orders } & 120,000 & \text { Number of orders } & 8,000 \
\text { Picking orders } & 240,000 & \text { Number of different products ordered } & 120,000 \
\text { Packaging orders } & 180,000 & \text { Number of items ordered } & 150,000 \
\text { Returns } & 15,000 & \text { Number of returns } & 3,000
\end{array}$
One customer of First Décor placed 30 electronic orders with a total selling price of $25,400. The direct cost of these orders is $17,200. The orders consist of five different products with a total of 2,200 items, and two returns. Using an activity-based costing method, how much are the indirect costs associated with serving this customer?

Question

Quizplus · Accepted Answer

The indirect costs associated with serving this customer are:Processing electronic orders: 30 orders x $10 ($400,000 / 40,000 orders) = $300Picking orders: 5 different products x $2 ($240,000 / 120,000 products) = $10Packaging orders: 2,200 items x $1.20 ($180,000 / 150,000 items) = $2,640Returns: 2 returns x $5 ($15,000 / 3,000 returns) = $10Total indirect costs: $300 + $10 + $2,640 + $10 = $2,960

First Décor Has Analyzed the Indirect Costs Associated with Servicing