Bay Company produces boats for 11 major buyers. Of the 11 customers, one accounts for 45 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase boats in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Bay's customer activity follow:
Order-filling costs for Bay Company total £401,500, and sales-force costs are £260,000.
Required:

a.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are allocated based on sales volume.
b.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are assigned using activity-based costing.
c.
Comment on the differences in amounts attributed to the smaller customers in requirements a and b

Question

Bay Company produces boats for 11 major buyers. Of the 11 customers, one accounts for 45 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase boats in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Bay's customer activity follow:
Order-filling costs for Bay Company total £401,500, and sales-force costs are £260,000.
Required:
  
a.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are allocated based on sales volume.
b.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are assigned using activity-based costing.
c.
Comment on the differences in amounts attributed to the smaller customers in requirements a and b

Quizplus · Accepted Answer

The Answer of Bay Company produces boats for 11 major buyers. Of the 11 customers, one accounts for 45 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase boats in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Bay's customer activity follow:
Order-filling costs for Bay Company total £401,500, and sales-force costs are £260,000.
Required:
  
a.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are allocated based on sales volume.
b.
Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the ten smaller customers if these costs are assigned using activity-based costing.
c.
Comment on the differences in amounts attributed to the smaller customers in requirements a and b

Bay Company Produces Boats for 11 Major Buyers