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Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent where cost is defined as manufacturing cost plus order processing cost

Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent, where cost is defined as manufacturing cost plus order processing cost. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Cost and sales information by customer category is provided below. Order-filling capacity is purchased in steps (order-processing clerks) of 1,000, each step costing $40,000; variable order-filling activity costs are $30 per order. The activity capacity is 39,000 orders; thus, the total order-filling cost is $2,715,000 [(39 steps × $40,000) þ ($30 × 38,500)]. Current practice allocates ordering cost in proportion to the units purchased. Deeds recently lost a bid for 100 units. (The per-unit bid price was $2 per unit more than the winning bid.) The manager of Deeds was worried that this was a recurring trend for the larger orders. (Other large orders had been lost with similar margins of loss.) No such problem was taking place for the smaller orders; the company rarely lost bids on smaller orders. Required: 1. Calculate the unit bid price offered to Deeds’s customers assuming that order-filling cost is allocated to each customer category in proportion to units sold. 2. Assume that a newly implemented ABC system concludes that the number of orders placed is the best cost driver for the order-filling activity. Assign order-filling costs using this driver to each custom

Jun 19 2020 View more View Less

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