First Décor has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability.Results for the year appear below: $\begin{array}{lrlr}\hline \text { Cost Pool } & \text { Cost } & \text { Cost Driver } & \text { Quantity } \
\hline \text { Processing electronic orders } & \$ 400,000 & \text { N umber of orders } & 40,000 \
\text { Processing non-electronic orders } & 120,000 & \text { N umber of orders } & 8,000 \
\text { Picking orders } & 240,000 & \text { N umber of different products ordered } & 120,000 \
\text { Packaging orders } & 180,000 & \text { N umber of items ordered } & 150,000 \
\text { Returns } & 15,000 & \text { Number of returns } & 3,000
\end{array}$ One customer of First Décor placed 30 electronic orders with a total selling price of $25,400.The direct cost of these orders is $17,200.The orders consist of five different products with a total of 2,200 items, and two returns.Using an activity-based costing method, how much are the indirect costs associated with serving this customer?
A)$2,960
B)$996
C)$2,660
D)$3,110

Question

Quizplus · Accepted Answer

The indirect costs are calculated by allocating costs based on the cost drivers:  - Electronic orders: $ \frac{400,000}{40,000} \times 30 = 300 $  - Picking orders: $ \frac{240,000}{120,000} \times 5 = 10 $  - Packaging orders: $ \frac{180,000}{150,000} \times 2,200 = 2,640 $  - Returns: $ \frac{15,000}{3,000} \times 2 = 10 $  Total indirect costs = 300 + 10 + 2,640 + 10 = 2,960.

First Décor Has Analyzed the Indirect Costs Associated with Servicing