Reference no: EM132690690
Problem - Activity-based costing and customer profitability
Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate:
|
Customer Service Activity
|
Activity Base
|
Activity Rate
|
|
Bid preparation
|
Number of bid requests
|
$220/request
|
|
Shipment
|
Number of shipments
|
$18/shipment
|
|
Support standard items
|
Number of standard items ordered
|
$24/std. item
|
|
Support nonstandard items
|
Number of nonstandard items ordered
|
$82/nonstd. item
|
Assume that the company had the following gross profit information for three representative customers:
|
|
Customer 1
|
Customer 2
|
Customer 3
|
|
Revenue
|
$32,300
|
$21,500
|
$26,000
|
|
Cost of goods sold
|
19,380
|
11,180
|
12,480
|
|
Gross profit
|
$12,920
|
$10,320
|
$13,520
|
|
Gross profit as a percent of sales
|
40%
|
48%
|
52%
|
The administrative records indicated that the activity-base usage quantities for each customer were as follows:
|
Activity Base
|
Customer 1
|
Customer 2
|
Customer 3
|
|
Number of bid requests
|
10
|
6
|
22
|
|
Number of shipments
|
14
|
23
|
42
|
|
Number of standard items ordered
|
45
|
36
|
51
|
|
Number of nonstandard items ordered
|
16
|
26
|
50
|
Required -
a. Prepare a customer profitability report dated for the year ended December 31, 2012, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent.
b. Interpret the report in part (a).