Question

Daffodil Cosmetics has six customers who buy all the cosmetics it produces. One large customer purchases 400,000 units per year, placing four orders per year. The other five customers order 500,000 units in total, placing 200 orders per year. At the end of current year, Daffodil has incurred the order filling cost of $510,000. Which of the following is the order filling cost assigned to the large customer using the activity-based costing method?

a. $10,000
b. $12,500
c. $8,000
d. $2,500

Answer 1

The order filling cost assigned to the large customer at Daffodil Cosmetics using activity-based costing method is $10,000, as the customer places four orders and the cost per order is $2,500.

Step-by-step explanation:

To calculate the order filling cost assigned to the large customer using the activity-based costing (ABC) method, we first need to determine the cost per order. Given that the annual order filling cost is $510,000 for all customers and there are 204 orders in total (4 from the large customer and 200 from the other customers), we divide the total cost by the total number of orders to get the cost per order.

Cost per order = $510,000 / 204 = $2,500 per order.

Since the large customer places four orders a year, the cost assigned to this customer is:

Large customer order filling cost = 4 orders x $2,500 per order = $10,000.

Therefore, the correct answer is (a) $10,000.