# What additional costs will be charged to this customer?

Question 10. 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? Question 11 Costa Company has a capacity of 40,000 units per year and is currently selling 35,000 for \$400 each. Barton Company has approached Costa about buying 2,000 units for only \$300 each. The units would be packaged in bulk, saving Costa \$20 per unit when compared to the normal packaging cost. Normally, Costa has a variable cost of \$280 per unit. The annual fixed cost of \$2,000,000 would be unaffected by the special order. What would be the impact on profits if Costa were to accept this special order? Profits would increase \$40,000. Profits would increase \$60,000. Profits would decrease \$200,000. Profits would increase \$80,000 Question 12 A company has \$7.80 per unit in variable costs and \$3.60 per unit in fixed costs at a volume of 50,000 units. If the company marks up total cost by 0.55, what price should be charged if 57,000 units are expected to be sold? Question 13 Customer profitability analysis might result in: dropping some customers that are unprofitable. lowering price or offering incentives to profitable customers. giving incentives to all customers to place orders online. All of the above. Question 14 The Estrada Company uses cost-plus pricing with a 0.44 mark-up. The company is currently selling 100,000 units. Each unit has a variable cost of \$3.70. In addition, the company incurs \$195,000 in fixed costs annually. If demand falls to 77,700 units and the company wants to continue to earn a 0.44 return, what price should the company charge? Question 15 A new product is being designed by an engineering team at Golem Security. Several managers and employees from the cost accounting department and the marketing department are also on the team to evaluate the product and determine the cost using a target costing methodology. An analysis of similar products on the market suggests a price of \$121.00 per unit. The company requires a profit of 0.28 of selling price. How much is the target cost per unit? Question 16 A company using activity based pricing marks up the direct cost of goods by 0.24 plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: \$7.80 per order placed; \$3.60 per separate item ordered; \$25.40 per return. A customer places 5 orders with a total direct cost of \$3,000, orders 299 separate items, and makes 8 returns. What will the customer be charged? Question 17 A law firm uses activity-based pricing. The company’s activity pools are as follows: Cost Pool Annual Estimated Cost Cost Driver Annual Driver Quantity Consultation 198,000 Number of consultations 80 consultations Administrative Costs 140,000 Admin labor hours 9,400 labor hours Client Service 96,000 Number of clients 110 clients The firm had two consultations with this client and required 130 administrative labor hours. What additional costs will be charged to this customer?

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