Date due: 29 October 2008
Weighting: 15% of the total marks of the course
Question 1 (25 marks)
Mini Case – Seto’s Storage Warehouse
Paul Seto owns and manages a commercial storage warehouse. He stores a vast variety of perishable goods for his customers. Under the existing pricing policy, he has charged customers using a flat rate of $2.40 per kilogram per month for goods stored. His storage warehouse has 10,000 cubic metres of storage capacity.
In the past two years, Seto has become dissatisfied with the profitability of the warehouse operation. Despite the fact that the warehouse remains relatively full, revenues have not kept pace with operating costs. Recently, Seto approached his accountant, Albert Lo, about using activity-based costing (ABC) to improve his understanding of the causes of costs and revise the pricing formula. Lo has determined that most costs can be associated with one of four activities. Those activities and their related monthly costs, volume measures, and volume levels for 2008 are as follows:
|Activity |Cost |Monthly Volume Measure |
|Send/receive goods | $80,000 |Weight in kilograms – 50,000 |
|Store goods | $8,000 |Volume in cubic metres – 800 |
|Move goods | $10,000 |Volume in square metres – 500 |
|Identify goods | $3,000 |Number of packages – 500 |
Lo has also collected last month’s information on the following 3 customers whose goods were all received on the first day of last month.
|Customers |Weight of Order |Cubic Metres |Square Metres |Number of Packages