The total number of orders through the whole mail order business for the company in the coming year is expected to be 100,000 orders.Meanwhile the budgeting process for the coming year is proceeding. CW Products plc uses an activity-based costing (ABC) system and the following estimated (unit and batch-related) cost information for the coming year is also available:Retail outlet costs:Number each year for each:Activity
Cost driver Rate per cost driver
Department store
Own shopTelephone queries and requests to CW
Sales visits to shops and stores by CW sales staff
Shop orders
Packaging
Delivery to shopsCallsVisits
Orders
Deliveries
Deliveries $15250
20
100
150402
25
28
283504
150
150
150Staffing, rental and service costs for each of CW Products plcs own shops amounts to, on average, $200,000 per shop per year.
Mail order costs:Rate per cost driver
Activity Cost driver Post Telephone InternetProcessing mail orders
Dealing with mail order queries
Orders
Orders $
5
4 $
6
4 $
3
1
Number of packages per orderPackaging and deliveries for mail orders cost per package $10Packages
2
2
1
The maintenance of an Internet sales link is estimated to cost $80,000 for the coming year.Additionally, the company has fixed (product and facility related) costs of Warehousing which serves the mail order business and replenishes the shops and store outlets. Information technology costs (in addition to the internet-sales link mentioned above) which support all sites. There are central administration costs dealing with procurement of products and the overall senior management salaries and office costs and the human resource function which deals with training and recruitment for all outlets. The expected costs for the coming year are shown below:
$
Warehouse
IT
Administration
Personnel 1,750,000
850,000
1,450,000
300,000
4,350,000