Johnson Company Produces Office Equipment for 16 Major Buyers Order-Filling Costs for Johnson Company Total £270,000, and Sales-Force Costs

question 35

Essay

Johnson Company produces office equipment for 16 major buyers. Of the 16 customers, one accounts for 50 per cent of the sales, with the remaining 15 accounting for the rest of the sales. The 15 smaller customers purchase equipment in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Johnson's customer activity follow: $$\begin{array} { l l l } & \text { Large Customer } & 15 \text { Smaller Customers } \\\text { Units purchased } & 50,000 & 50,000 \\\text { Orders placed } & 6 & 294 \\\text { Number of sales calls } & 26 & 224 \\\text { Manufacturing cost } & £ 750,000 & £ 750,000\end{array}$$ Order-filling costs for Johnson Company total £270,000, and sales-force costs are £300,000.
a.Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the 15 smaller customers if these costs are allocated based on sales volume.
b.
b.Determine the amount of selling costs (order-filling and sales-force costs) allocated to (1) the large customer and (2) the 15 smaller customers if these costs are assigned using activity-based costing.
c.Comment on the differences in amounts attributed to the smaller customers in requirements a and

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