E-Flix rents DVDs that are mailed out to customers upon demand. E-Flix has identified three activities involved in getting the videos to its customers. Information on those activities for the month of July follows: Cost Pools, Cost Drivers, Estimated Overhead Cost, Expected Use of Cost Drivers, Order taking costs, Number of orders $20,592 187,200 orders Technology support, Number of minutes 11,700 234,000 minutes, Picking and shipping costs, Number of DVDs 39,624 330,200 DVDs. During July, the Tucker family placed 17 orders consisting of 21 DVDs. Tucker required 7 minutes of tech support. Customers pay $9.00 per month to rent unlimited DVDs. Using ABC, how much overhead is applied to the Tucker family account for order taking costs?

$1.87

Explanation:

First, the multiple options to the question:

$2.52

$1.87

$6.45

$4.74

The question is to determine the overhead to be applied to the Tucker family account for order taking Costs.

Step 1: Determine the cost per activity for the different costs

1. The Order taking Costs

= Amount/ the number of Orders

= $20,592/187,200 orders = $0.11

2. Technology Support

= Amount / Number of Minutes

= $11,700/234,000 minutes = $0.05

3. Picking and Shipping Costs

= Amount/ Number of DVDs

= $39,624/330,200= $0.12

Step 2: Determine the Overhead to be applied Order taking costs

= Order taking Cost per Activity (determined in step 1) x the number of orders

=$0.11 x 17 orders consisting of 21 DVDs

= $1.87

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