ACCT3032TuteSols64.pdf

ACCT3032TuteSols64 - 264 Award 1.00 point Taylor's Cafe...

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Unformatted text preview: 264. Award: 1.00 point Taylor's Cafe Supply Company delivers restaurant supplies throughout the city. Taylor's adds 4% to the order cost to cover the delivery cost. The delivery fee is meant to just cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities are: Activity Process order Load truck Deliver merchandise Process invoice Cost Driver number of orders number of items number of orders number of invoices $ Cost 25,000 50,000 30,000 24,000 Total overhead $ 129,000 Driver Volume 4,000 orders 80,000 items 4,000 orders 6,000 invoices Two of Taylor’s customers are City Diner and Le Chien Chaud. Below are data on orders and deliveries to these two customers: Order value Number of orders Number of items Number of invoices City Diner $24,000 50 550 12 Le Chien Chaud $32,000 100 1,600 120 Required: (a) What would be the delivery charge for each customer under the current policy of 4% of order value? (b) What would the activity-based costing system estimate as the cost of delivering to each customer? (a) City Diner: $960; Le Chien Chaud: $1,280 (b) City Diner: $1,079.25; Le Chien Chaud: $2,855.00 (a) City Diner: $24,000 × .04 = $960; Le Chien Chaud: $32,000 × .04 = $1,280 (b) Cost driver rates: Activity Process order Load truck Deliver merchandise Process invoice Cost Driver number of orders number of items number of orders number of invoices Cost $25,000 50,000 30,000 24,000 / / / / Driver Volume 4,000 orders 80,000 items 4,000 order 6,000 invoices = = = = = Rate $ 6.25/order $0.625/item $ 7.50/order $ 4,00/invoice Cost of delivery: Activity Process order Load truck Deliver merchandise Process invoice Total cost City Diner Volume Cost 50 orders $ 312.50 550 items 343.75 50 orders 375.00 12 invoices 48.00 $ 1,079.25 Le Chien Chaud Volume Cost 100 orders $ 625.00 1,600 items 1,000.00 100 orders 750.00 120 invoices 480.00 $2,855.00 $312.50 = 50 orders × $6.25 per order; $625 = 100 orders × $6.25 $343.75 = 550 items × $0.625 per item; $1,000 = 1,600 items × $0.625 $375.00 = 50 orders × $7.50 per order; $750 = 100 orders × $7.50 $48.00 = 12 invoices × $4.00 per invoice; $480 = 120 invoices × $4.00 References Essay Difficulty: 2 Medium Learning Objective: 10-04 Use activity-based costing methods to assess customer and supplier costs. 265. Award: 1.00 point Vargas Financial (VF) only offers checking accounts. Customers can write checks and use a network of automated teller machines. VF earns revenue by investing the money deposited (subject to reserve requirements). Currently VF averages 6% return annually on its investments. In order to compete with larger banks, VF pays depositors 1% on all deposits. A recent study classified the operating costs of the bank into four activities. Data on these activities are: Activity Use ATM Visit branch Process transaction General bank overhead Cost Driver number of uses number of visits number of transactions total deposits $ Cost 2,000,000 6,000,000 4,000,000 8,000,000 Total overhead $ 20,000,000 Driver Volume 10,000,000 uses 750,000 visits 40,000,000 transactions 450,000,000 Data on two representative customers are shown below: ATM uses Branch visits Number of transactions Average deposit Customer A 300 5 60 $450 Customer B 50 20 1,200 $ 10,000 Required: (a) Compute the operating profits of the Vargas Financial. (b) Compute the profit of Customer A and Customer B, assuming that customer costs are based only on deposits. (c) Compute the profit of Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis. a. 4,500,000 20,000,000 Revenues: $450,000,000 × 6% interest on deposits: $45,000,000 × 1% costs as given total costs $ 27,000,000 24,500,000 $ 2,500,000 operating profits b. operating costs $20,000,000/deposits $450,000,000 = 4.4444% Revenue A: $450 × 6% B: $10,000 × 6% Costs: Interest on deposits A: $450 × 1% B: $10,000 × 1% Operating costs A: $450 × 4.4444% B: $10,000 × 4.4444% Profit Customer A $ 27.00 4.50 20.00 $ 2.50 Customer B $600.00 100.00 444.44 $ 55.56 c. Activity Use ATM Visit branch Process transaction General bank overhead Cost $2,000,000 6,000,000 4,000,000 8,000,000 Driver Volume 10,000,000 uses 750,000 visits 40,000,000 transactions 450,000,000 Revenue A: $450 × 6% B: $10,000 × 6% Costs: Interest on deposits A: $450 × 1% B: $10,000 × 1% Operating costs Use ATM A: 300 × $0.20 B. 50 × $0.20 Visit branch A: 5 × $8 B: 20 × $8 Process transactions A: 60 × $0.10 B: 1,200 × $0.10 General overhead A: $450 × 1.778% B: $10,000 × 1.7778% Profit References Customer A $ 27.00 4.50 60.00 40.00 6.00 8.00 – $ 91.50 Customer B $600.00 100.00 10.00 160.00 120.00 177.78 $ 32.22 Rate $ 0.20/use $ 8/visits $ 0.10/transaction $ 1.778% ...
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