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Calculate Activities Using Activity Based Costing System

Question

Northern Distributors Plc. sells bottled water to corporate clients. The cost it pays for each bottle of water is £1.50. Its normal (list) selling price is £1.99 per bottle. Northern has decided to analyse the profitability of each of its five customers (101, 102, 103, 104 and 105). The following table details information about each of the five customers:

 

101

102

103

104

105

Number of Bottles Sold

50,000

75,000

35,000

90,000

10,000

Price Discount

5%

10%

10%

5%

0%

Number of Orders

50

50

35

100

25

Number of Sales Visits

5

8

3

10

4

Number of Deliveries

25

30

35

50

25

Distance to Customer

10 km

5 km

30 km

15 km

10 km

Using an activity based costing system, Northern has adopted the following four activities and related cost per activity driver:

  • Order Taking (£60/order);
  • Sales Visit (£300/visit);
  • Delivery (£6/km);
  • Product Handling (£0.10 per unit).

Required:

Determine the profitability of each of the five customers.

Summary

The question belongs to Accounting and it discusses about calculation of four activities based on activity costing system.

Total Word Count 189

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