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Carlton Products Company has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability
Carlton Products Company has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability. Results appear below:
Cost Pool
Annual Cost
Cost Driver
Annual Driver Quantity
Processing electronic orders
$1,000,000
Number of orders
500,000
Processing non-electronic orders
$2,000,000
Number of orders
400,000
Picking orders
$3,000,000
Number of different products ordered
800,000
Packaging orders
$1,500,000
Number of items ordered
50,000,000
Returns
$2,000,000
Number of returns
50,000
If all costs were assigned to customers based on the number of items ordered, what would be the cost per item ordered?
Expert Solution
Cost Per Item Ordered = Total of Indirect Costs/Number of Items Ordered
here,
Total indirect cost= Processing electronic orders+ Processing non-electronic orders+ Picking orders+ Packaging orders+ Returns
= $1,000,000+ $2,000,000+ $3,000,000+ $1,500,000+ $2,000,000
= $ 9,500,000
Cost Per Item Ordered= $ 9,500,000/ 50,000,000
= $0.19
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