# Follow the instructions to create your own worksheet version of the Review Problem in the text...

Assume that OfficeMart places orders more frequently, but everything else remains the same. On your worksheet increase the number of orders from 4 to 5. amounts.) 1 Chapter 7: Applying Excel 3 Data 4 Manufacturing overhead 5 Selling and administrative overhead \$500,000 \$300.000 Assembling Units 50% Other Processing Orders 35% 45% Supporting Customers 5% 25% 100 customers 8 Manufacturing overhead 9 Selling and administrative overhead 10 Total activity 11 10% 250 1,000 units orders 13 OfficeMart orders: 14 Customers 15 Orders 16 Number of filing cabinets ordered in total 17 Selling price 18 Direct materials 19 Direct labor 1 customer 5 orders 80 units \$595 \$180 \$50 (a) What is the customer margin under activity based costing when the number of orders increases to 57 (Enter a loss as a negative amount Customer margin under activity-based costing

a) Firstly we need to calculate activity cost per unit which is shown as follows:-

 Assembling Units Processing Orders Supporting Customers Other Manufacturing Overhead (\$500,000 in the ratio of 50:35:5:10) 250,000 (500,000*50%) 175,000 (500,000*35%) 25,000 (500,000*5%) 50,000 (500,000*10%) Selling and administration overhead (\$300,000 in the ratio of 10:45:25:20) 30,000 (300,000*10%) 135,000 (300,000*45%) 75,000 (300,000*25%) 60,000 (300,000*20%) Total Activity cost (A) 280,000 310,000 100,000 110,000 Total Activity (B) 1,000 units 250 orders 100 customers Activity cost per unit (A/B) 280 per unit 1,240 per order 1,000 per customer

Calculation of customer margin under activity based costing (Amounts in \$)

 Sales revenue (80 units*\$595 per unit) (C) 47,600 Costs: Direct materials cost (80 units*\$180) 14,400 Direct labor (80 units*\$50) 4,000 Assembling cost (80 units*\$280) 22,400 Order processing cost (5 orders*\$1,240) 6,200 Supporting customers 1,000 Total cost (D) 48,000 Customer margin (C-D) (400)

Therefore there is a net loss of \$400.

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