Question

Ranada Company manufactures and sells sportswear products. Ranada uses activity-based costing to determine the cost of the customer return processing and the shipping activity. The customer return processing activity has an activity rate of $45 per return, and the shipping activity has an activity rate of $10 per shipment. Ranada shipped 3,000 units of Product 1 in 1,200 shipments (some shipments are more than one unit). There were 150 returns.

Determine the per-unit customer costs for combined shipping and returns of Product 1.
a. $24.75 per unit
b. $2.25 per unit
c. $6.25 per unit
d. $55 per unit

Answer 1

Answer: The customer cost for combined shipping and returns of Product 1 is $6.25 per unit.(option c)

We arrive at the answer as follows:

A. Calculating cost of returns

`Cost of returns = Cost per returns * Number of returns`

`Cost of returns = 45 * 150`

`Cost of returns = 6750`

B. Calculating Cost of shipments

`Cost of shipments = Rate per shipment * Number of shipments`

`Cost of shipments = 10 * 1200`

`Cost of shipments = 12000`

C.Calculate total cost of shipments and cost of returns

`Total Cost = Cost of shipments + Cost of returns`

`Total Cost = 12000 + 6750`

`Total Cost = 18750`

D. Calculate cost per unit

`Cost per unit = (Total Cost)/(Number of units shipped)`

`Cost per unit = (18750)/(3000)`

`Cost per unit = 6.25`