Last year, Tevia Inc. shipped 6,000,000 kg of goods to customers at a cost of $4,800,000. Suppose an individual customer orders 40,000 kg and produces $400,000 of revenue. (The total revenue is $40 million.) What amount of shipping cost would be assigned to the customer when using activity-based costing?
A) $4,000
B) $8,000
C) $32,000
D) $40,000

Question

Quizplus · Accepted Answer

To use activity-based costing, we need to first identify the cost driver for shipping costs. Let's assume that the cost driver is the number of kilograms shipped.

Total cost per kg of goods shipped = $4,800,000 ÷ 6,000,000 kg = $0.80/kg

Now, we can calculate the shipping cost assigned to the individual customer as follows:

Shipping cost per kg * Number of kg shipped to the customer = $0.80/kg * 40,000 kg = $32,000

Therefore, the correct answer is choice C.

Last Year, Tevia Inc