Question

Express Travel decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Express Travel should charge $16 per order, 1% of annual order value for general delivery costs, $2.50 per item, and $45 for delivery. A year later, Express Travel collected the following information for three of its customers:

Option 1: $89.50
Option 2: $108.75
Option 3: $124.25
Option 4: $133.00

Answer 1

The question is about using activity-based costing to calculate total charges for delivery services provided by Express Travel, and understanding the significance of opportunity cost in economics.

Step-by-step explanation:

The question posed relates to the application of activity-based costing (ABC), a methodology used in cost accounting to accurately assign costs to products or services based on the resources they consume. In the scenario, Express Travel uses ABC to determine delivery service prices, including various cost components such as a flat fee per order, a percentage of the annual order value, a per item cost, and a fixed delivery fee. As such, the task involves calculating the total charges for different customers based on this pricing strategy. To answer the student's question, one would need to apply these rates to the provided customer information to ascertain the total cost for each option. The concept also extends to understanding the economic impact of delays, illustrating that opportunity costs (like the cost of waiting time in airports) can have significant financial implications, analogous to how different cost components affect pricing in ABC.