Reference no: EM132567277

Colleen Company has gathered the following data pertaining to activities it performed for two of its major customers.

Jerry, Inc.Kate Co.

Number of orders 4 60

Units per order 1,000 160

Sales returns:

Number of returns 2 3

Total units returned 60 160

Number of sales calls 12 5

Colleen sells its products at $290 per unit. The firm's gross margin ratio is 25%. Both Jerry and Kate pay their accounts promptly and no accounts receivable is over 30 days. After using business analytics software to carefully analyze the operating data for the past 30 months, the firm has determined the following activity costs:

Activity         Cost Driver and Rate

Sales calls          $900per visit

Order processing   430per order

Deliveries                 300per order

Sales returns            240per return and $4 per unit returned

Sales salary                110,000per month

Required:

Question 1. Using customers as the cost objects, classify the activity costs into cost categories (unit-level, batch-level, etc.) and compute the total cost for Colleen Company to service Jerry, Inc. and Kate Co.

Question 2. Compare the profitability of these two customers.