3 cost accounting questions to compute and answer

due April 23,2017 by 8pm

1. Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 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:

Cost Driver Volume
Activity Cost Driver Cost Driver Volume
Processing order Number of orders $ 90,000 6,000 orders
Loading truck Number of items 180,000 120,000 items
Delivering merchandise Number of orders 108,000 6,000 orders
Processing invoice Number of invoices 90,000 5,000 invoices
Total overhead $ 468,000

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

City Diner Le Chien Chaud
Order value $ 73,000 $ 83,000
Number of orders 53 150
Number of items 800 1,900
Number of invoices 13 190


a. What would the delivery charge for each customer be under the current policy of 10 percent of order value?

b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of each customer. (Do not round intermediate calculations.)

2. Friendly Financial has $95 million in consumer loans with an average interest rate of 8 percent. The bank also has $63 million in home equity loans with an average interest rate of 6 percent. Finally, the company owns $17 million in corporate securities with an average rate of 5 percent.

Managers at Friendly Financial estimate that next year its consumer loan portfolio will rise to $169 million and the interest rate will fall to 6 percent. They also estimate that its home equity loans will fall to $50 million with an average interest rate of 6 percent, and its corporate securities portfolio will increase to $18 million with an average rate of 5 percent.


Estimate Friendly Financial’s revenues for the coming year. (Enter your answer in thousands of dollars.)

3. Stubs-R-Us is a local event ticket broker. Last year, the company sold 1,000,000 tickets with an average commission of $5. Because of the general economic climate, Stubs expects ticket volume to decline by 20 percent. In addition, employees at a local insurance company headquarters accounted for 5 percent of Stubs’ volume. The headquarters relocated to another state and all the employees closed their accounts.

Offsetting these factors is the observation that the average commission per sale is likely to increase by 9 percent because the average ticket prices are expected to be larger in the coming year.


Estimate commission revenues for Stubs-R-Us for the coming year.

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