Hidden Valley Company Produces Precision Components Order-Filling Costs for Hidden Valley Company Total $180,000, and Sales-Force

Essay

Hidden Valley Company produces precision components. Hidden Valley has six customers, one of which accounts for 40 percent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Hidden Valley 's customer activity follow:
$$\begin{array} { l c c } & & \text { Five Small } \\& \text { Large Customer } & \text { Customers } \\\text { Units purchased } & 200,000 & 300,000 \\\text { Orders placed } & 10 & 350 \\\text { Number of sales calls } & 20 & 230\\\text { Manufacturing cost } &\$600,000&\$900,000\end{array}$$
Order-filling costs for Hidden Valley Company total $180,000, and sales-force costs are $275,000.
Required:
a. Allocate the order-filling and sales force costs to the customers based on sales volume.
b. Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.