Question

Stinler Corporation manufactures curtains for retail stores and for individual customers. The retail chain buys 70% of the curtains produced. The individual customers purchase curtains in approximately equal quantities, where the orders are about the same size. Data concerning Stinler's customer activity are as follows:
	Retail Stores	Individual Customers
Units sold	56,000	24,000
Orders placed	8	492
Number of sales calls	4	156
Manufacturing costs	8,000,000	3,500,000
Order filling costs allocated	375,000	225,000
Sales force costs allocated	265,000	135,000
Currently, allocations of Order Filling and Sales Force costs are assigned to customers based on units sold, a unit-level driver.
Show all calculation steps to
Re-assign Order Filling and Sales Force costs to customers by using an ABC approach.

Answer 1

Under ABC costing, overhead costs are divided into different costs and are assigned using different cost drivers

Order filling costs will be allocated as per number of orders placed and sales force cost shall be allocated using number of sales calls

	Retail Stores	Individual Customers
Order filling costs allocated	600,000*8/500 = $9,600	600,000*492/500 = $590,400
Sales force costs allocated	400,000*4/160 = $10,000	400,000*156/160 = $390,000
Total cost allocated	19,600	980,400