Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 2

Activity-Based Costing of Customers
Marvin's Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 5 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to 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 follow:

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow:

Required
a. What would the delivery charge for each customer be under the current policy of 5 percent of order value
b. What would the activity-based costing system estimate as the cost of delivering to each customer
c. How could Marvin's use the information identified by the new costing method to manage costs