Question

This year, Lambert Company will ship 1,500,000 pounds of goods to customers at a cost of $1,200,000. If a customer orders 10,000 pounds and produces $200,000 of revenue (total revenue is $20 million), the amount of shipping cost assigned to the customer by using ABC would be a.unable to be determined. b.$8,000 (0.80 per pound shipped). c.$24,000 (2% of the shipping cost). d.$12,000 (1% of the shipping cost). e.None of these.

Answer 1

Answer:

(B) $8,000 (0.80 per pound shipped).

Step-by-step explanation:

In ABC system, the shipping cost to be assigned can be calculated by using the shipping cost per pound. Shipping cost per pound will be an appropriate cost driver for the shipping activity. The revenue generated by customer is irrelevant for computation of total cost.

Shipping cost = Shipping cost per pound × quantity ordered by customers.

Therefore,

Shipping cost = (Total shipping cost ÷ total quantity shipped) × Quantity ordered by customer.

Therefore,

Shipping cost = 1,200,000 ÷1,500,000 × 10,000

Shipping cost = 0.8 × 10,000

Shipping cost = $8000