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2.Themens Co uses activity-based costing. The budgeted distribution costs for the next year are:
$
Transport costs 2,631,200
Order processing 1,573,000
Total distribution costs 4,204,200
It is estimated that 325,000 orders will be processed in the next year and that the delivery vehicles will travel 1,495,000 km.
A customer has indicated that 138 orders, each requiring an average journey of 122 km, will be placed next year.
What is the distribution cost for this customer (to the nearest $)?
A.$1,785
B.$30,299
C.$38,891
D.$47,342
The correct answer is B. Looking at the answers the processing cost per unit of $ 4.84 has not been multiplied by 138 orders. Can you explain why please? Thanks, in advance.To calculate the distribution cost for the customer, we need to determine the cost per order and the cost per kilometer traveled.
First, let’s calculate the cost per order:
Total order processing cost = $1,573,000
Total number of orders = 325,000
Cost per order = Total order processing cost / Total number of orders = $1,573,000 / 325,000 = $4.84 (rounded to two decimal places)Next, let’s calculate the cost per kilometer traveled:
Total transport cost = $2,631,200
Total kilometers traveled = 1,495,000
Cost per kilometer = Total transport cost / Total kilometers traveled = $2,631,200 / 1,495,000 = $1.76 (rounded to two decimal places)Now, we can calculate the distribution cost for the customer:
Number of orders for the customer = 138
Average journey distance per order = 122 km
Distribution cost for the customer = (Cost per order * Number of orders) + (Cost per kilometer * Average journey distance per order * Number of orders)
= ($4.84 * 138) + ($1.76 * 122 * 138)
= $669 + $29632
$30,299 approxWhy did u multiply the distribution cost by the number of orders (138 orders) again pls
Because each order needs to be distributed (delivered ) to the customer.
Distribution cost for the customer = (Cost per order * Number of orders)
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