Compute highest contribution margin for three customers

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Reference no: EM133125924

Question 1 - MNOP plc is an IT consultancy that provides IT advice to a range of clients.

MNOP classifies its customers into four main categories.


M

N

O

P

Sales value

$1397

$3003

$822

$1052

MNOP employs 10 full-time IT specialists who each deliver 1,500 chargeable hours per year and who are paid $60,000 per year.

MNOP has estimated its other costs as follows:


Costs

Telephone support

$950

After-sales service

$1349

Client meetings

$356


$2655

MNOP has reviewed its existing client database and determine the following four average profiles of typical clients:


M

N

O

P

Total

Number of telephone queries

44

420

52

237

753

Number of visits

5

29

6

9

49

Number of meetings

72

75

27

95

269

Chargeable hours

5

6

3

2

16

Previously MNOP used a single cost rate of $293 per hour for both in-house profit reporting and quotations for new contracts.

Compute and compare the profitability of each customers. Enter the highest profitability in net margin per sales dollars (in %, two decimal points) using an activity-based system of attributing costs.

Question 2 - Taylors Cheesecakes supplies cheesecakes to three large supermarket chains. Management has become concerned about the rising costs associated with the processing and dispatch of orders. An activity analysis of the indirect costs identified the following customer-related costs:





Customer use of cost driver

Activity cost pool

Cost driver

Est. indirect costs

Exp. Use of cost driver

1

2

3

Orders processing

No. orders

$295,000

414

184

104

126

Returns processing

No. returns

$48,000

105

26

58

21

Delivery

No. deliveries

$83,000

746

298

152

296

Rush orders

No. rush orders

$83,000

43

8

24

11

Sales visits

No. visits

$21,000

72

27

31

14

Sales are always marked up 40% on cost. The sales mix for the three customers in the period of investigation is as follows: Customer 1 - $866,000; Customer 2 - $372,000; Customer 3 - $362,000. Compute the highest contribution margin for the three customers and enter the amount.

Question 3 - Family Supermarkets (FS) has decided to increase the size of its Adelaide store. It wants information about the profitability of individual product lines: soft drinks, fresh produce and packaged food. FS provides the following data for 2020 for each product line:


Soft drinks

Fresh produce

Packaged food

Revenues

$317,400

$840,240

$483,960

Cost of goods sold

$240,000

$600,000

$360,000

Cost of bottles returned

$4,800

$0

$0

Number of purchase orders placed

101

178

155

Number of deliveries received

147

143

97

Hours of shelf-stocking time

1018

1067

1439

Items sold

5527

4530

6752

FS also provides the following information for 2020:

Activity

Description of activity

Total support costs

Cost-allocation base

Bottle returns

Returning of empty bottles to store

$4,800

Direct tracing to soft drink line

Ordering

Placing of orders for purchases

$62,400

434 purchase orders

Delivery

Physical delivery and receipt of merchandise

$100,800

387 deliveries

Shelf-stocking

Stocking of merchandise on store shelves and ongoing restocking

$69,120

3524 hours of shelf-stocking time

Customer support

Assistance provided to customers, including checkout and bagging

$122,880

16809 items sold

Total


$360,000


FS currently allocates store support costs (all costs other than cost of goods sold) to product lines on the basis of cost of goods sold of each product line. If FS allocates store support costs (all costs other than cost of goods sold) to product lines using an ABC system, calculate and enter the amount of difference in operating profit as a percentage of revenues for Soft drinks.

Question 4 - Family Supermarkets (FS) has decided to increase the size of its Adelaide store. It wants information about the profitability of individual product lines: soft drinks, fresh produce and packaged food. FS provides the following data for 2020 for each product line:


Soft drinks

Fresh produce

Packaged food

Revenues

$317,400

$840,240

$483,960

Cost of goods sold

$240,000

$600,000

$360,000

Cost of bottles returned

$4,800

$0

$0

Number of purchase orders placed

245

231

128

Number of deliveries received

158

292

219

Hours of shelf-stocking time

988

1363

399

Items sold

95918

116757

53372

FS also provides the following information for 2020:

Activity

Description of activity

Total support costs

Cost-allocation base

Bottle returns

Returning of empty bottles to store

$4,800

Direct tracing to soft drink line

Ordering

Placing of orders for purchases

$62,400

604 purchase orders

Delivery

Physical delivery and receipt of merchandise

$100,800

669 deliveries

Shelf-stocking

Stocking of merchandise on store shelves and ongoing restocking

$69,120

2750 hours of shelf-stocking time

Customer support

Assistance provided to customers, including checkout and bagging

$122,880

266047 items sold

Total


$360,000


FS currently allocates store support costs (all costs other than cost of goods sold) to product lines on the basis of cost of goods sold of each product line. If FS allocates store support costs (all costs other than cost of goods sold) to product lines using an ABC system, calculate and enter the amount of difference in operating profit as a percentage of revenues for Fresh product.

Reference no: EM133125924

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