Revising PlumbCos Model

The focus of activity-based costing at PlumbCo was the 5,800,000 of activity costs, those costs relating to the activities performed by the company. The 13,200,000 of direct material and purchased component costs were already assigned to products appropriately. As shown in the summary above, 2,200,000 was related to manufacturing, 2,200,000 to distribution, and 1,400,000 to selling and administrative activities. 

Manufacturing activities began with the purchase and receipt of direct materials and components and ended with the delivery of the manufactured product to its assigned location in the warehouse. Costs related to tire purchase and handling of materials and components were assigned to products as a cost per pound of material or a cost per dollar of components. Costs 

Distribution activities began with the receipt of an order and ended with the shipment of an order. The cost of processing orders was treated as a cost per order. The cost of picking orders was treated as a cost per each line item on an order. The cost of preparing shipments was treated as a cost per box shipped. Finally, the cost of shipping was assigned as a cost per shipment. 

The net result of these changes was that the actual manufactured cost of each product as it sat in PlumbCo s warehouse was accurately stated, the distribution cost related to each customer order could be accurately determined, and the cost of selling in each of the company s markets accurately measured. 

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