Assign costs to customers by using an abc approach

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Reference no: EM13938972

ACTIVITY-BASED CUSTOMER COSTING

Underwood Company produces sofas for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60 percent of the sofas produced. The 19 smaller customers purchase sofas in approxi- mately equal quantities, where the orders are about the same size. Data concerning Underwood's customer activity are as follows:

	Large Retailer	Smaller Retailers
Units purchased	24,000	16,000
Orders placed	8	800
Number of sales calls	4	196
Manufacturing costs	$14,400,000	$9,600,000
Order filling costs allocated*	$484,800	$323,200
Sales force costs allocated*	$240,000	$160,000

* Allocated based on sales volume.

Currently, customer-driven costs are assigned to customers based on units sold, a unit- level driver.

Required:

Assign costs to customers by using an ABC approach.

Reference no: EM13938972

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