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Ruperts Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. The firm adds 6...

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Accounting

Ruperts Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. The firm adds 6 percent to the cost of the appliances to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. The finance team at RAW has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:

Activity Cost Driver Activity Cost Cost Driver Volume
Processing order Number of orders $ 65,000 5,000 orders
Loading truck Number of items 266,000 140,000 items
Delivering order Number of orders 80,000 5,000 orders
Billing Number of invoices 64,000 4,000 invoices
Total overhead $ 475,000

Two of Rupert's customers are McLean Designs and Neveux Appliances. Data for orders and deliveries to these two customers follow:

McLean Designs Neveux Appliances
Order value (total) $ 85,000 $ 95,000
Number of orders 65 226
Total number of items 850 1,500
Number of invoices 13 170

Required:

  1. What would the delivery charge for each customer be under the current policy of 6 percent of order value?
  2. What would the activity-based costing system estimate as the cost of delivering to each customer?

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