Activity-Based Costing: Selling and Administrative Expenses

Fancy Feet Company manufactures and sells shoes. Fancy Feet uses activity-based costing to determine the cost of the sales order processing and the shipping activity. The sales order processing activity has an activity rate of $12 per sales order, and the shipping activity has an activity rate of $20 per shipment. Fancy Feet sold 27,500 units of walking shoes, which consisted of 5,000 orders and 1,400 shipments.

a. Determine the total sales order processing and shipping activity cost for walking shoes.
$

b. Determine the per-unit sales order processing and shipping activity cost for walking shoes. Round your answer to the nearest cent.
$ per unit

a) Total Sales order $60,000 and total Shipping is $28,000

b) Per unit sales order processing cost = $2.18 and shipping activity cost per walking shoe = $1.02

Explanation:

The question is divided into two parts

Part 1 ) Determine the Total Activity Cost as follows

Activity                                    Order               Rate             Total (Order x rate)

Sales Order Processing       5000 orders     $12/order        $60,000

Shipping                                1400 shipments $20/shipmt    $28,000

Total                                                                                          $88,000

Part 2)

a) Per-unit sales order processing cost

What is the sales order activity cost $60,000 and the number of walking shoes =27,500

Therefore Per unit cost = $60,000 / 27,500 = $2.18 per unit

b) Shipping activity cost per walking shoes

Shipping cost = $28,000 and the number of shoes 27,500

Per Unit Cost of shipping = $28,000/27,500 = $1.02 per unit

The total Activity cost therefore is $2.18 + $1.02 = $3.20

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