Reference no: EM132515450

Point 1: The CFO at Maple Grove Bakery (MGB) has decided to undertake a customer profitability study by focusing on SG&A costs, and the two main customer related activities. The first activity is fulfilling orders which includes the processing of orders, picking cases from finished goods inventory, and preparing it for delivery. The second activity is delivering the order, which is done using a fleet of MGB's delivery trucks.

Point 2: In the first-stage allocation, the CFO has determined that the total activity costs of Fulfilling Orders is $546,000, and the total activity costs of Delivering Orders is $1,607,040.

Point 3: To allocate these costs, the CFO will use the number of orders as the driver for Fulfilling Orders, and the total distance as the driver for Delivering Orders (total distance is calculated as the number of orders multiplied by the customer's round-trip distance from MGB's bakery). The total amount of these drivers used during the most recent fiscal year were 24,000 number of orders and 1,728,000 miles (there is no excess capacity in either of these drivers, because as volumes go up it is relatively easy to add capacity).

The CFO has compiled the following information for two typical customers:

                                                          Echo                         Tango
# order                                       100                     200
Round-trip distance from MGB      18 miles                 85 miles

Question (A) Determine the activity cost rate per order for Fulfilling Orders.

Question (B) Determine the total amount of Fulfilling Orders costs allocated to Echo.

Question (C) Determine the activity cost rate per mile for Delivering Orders.

Question (D) Determine the total amount of Delivering Orders costs allocated to Tango.