1. A company using activity based pricing marks up the direct cost of goods by 43% plus charges
customers for indirect costs based on the activities utilized by the customer. Indirect costs are
charged as follows: $8.00 per order placed; $4.00 per separate item ordered; $30.00 per return. A
customer places 10 orders with a total direct cost of $3,000, orders 300 separate items, and
makes 6 returns. What will the customer be charged?
A company using activity based pricing marks up the direct cost of goods by 43% plus charges
customers for indirect costs based on the activities utilized by the customer. Indirect costs are
charged as follows: $8.00 per order placed; $4.00 per separate item ordered; $30.00 per return.
A customer places 10 orders with a total direct cost of $3,000, orders 300 separate items, and
makes 6 returns. What will the customer be charged?
Solution
Total Direct Cost = $ 3,000
Markup thereon = 3,000 X 43% = $ 1,290
Hence, base sales price = $ 4,290
Additional Indirect Costs
For Orders = 10 X 8 = $ 80
For Separate Items = 300 X 4 = $ 1,200
For Returns made = 6 X 30 = $ 180
Hence, the total amount to be charged to the customer = $ 4,290 + $ 80 $ 1,200 + $ 180 = $
5,750