Delauder 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 activity-based costing system are listed below: The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the activity-based costing system, the total overhead cost for this customer this past year was closest to:
A) $4,034.35
B) $22,484.35
C) $2,426.35
D) $18,450.00

Question

Delauder 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 activity-based costing system are listed below:  The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
 According to the activity-based costing system, the total overhead cost for this customer this past year was closest to:
A) $4,034.35 
B) $22,484.35 
C) $2,426.35 
D) $18,450.00

Quizplus · Accepted Answer

The total cost of serving Grennon Corporation for one year can be calculated as follows:
Activity 1: Product design = $335.50 per unit x 150 units = $50,325
Activity 2: Order processing = $487.50 per order x 2 orders = $975
Activity 3: Product distribution = $6.20 per unit x 150 units = $930
Activity 4: Customer service = $1,608 per customer x 1 customer = $1,608

Total overhead cost for Grennon Corporation for the year = $50,325 + $975 + $930 + $1,608 = $53,838
Overhead cost per unit = Total overhead cost / total units sold = $53,838 / 150 units = $358.92 per unit

The cost of serving a customer for one year is already provided ($1,608.00). Therefore, the total overhead cost for the customer for the year can be calculated as follows:
Total overhead cost = Cost of serving a customer x Number of customers = $1,608 x 1 = $1,608

Total cost of the product for Grennon Corporation = (150 units x $92) + $358.92 per unit = $14,780 + $358.92 = $15,138.92

Therefore, the total overhead cost for Grennon Corporation as per the activity-based costing system is $1,608, and the closest answer choice is A) $4,034.35.

Delauder Enterprises Makes a Variety of Products That It Sells