Based on a study of operations at TCS, it was determined that “number of orders” was a better cost-allocation base for the order processing and customer service activities. The cost of the resources used by these two activities is $552,000 out of the total indirect cost pool of $1,380,000. TCS now wants to refine its costing system by allocating order processing and customer service activities to customers rather than to products.
1. Prepare a schedule that shows product gross margin for each of the products made by TCS.
2. Prepare a schedule that shows customer product gross margin, customer cost to serve, and customer profitability.
3. Prepare a chart that shows customer product gross margin percentage versus customer cost-to-serve percentage for each of the customer types. Based on this chart, recommend a strategy that can be used to improve customer profitability for each customer type.
4. Compare customer profitability results determined by this refined costing system to the results obtained in Problem 12-42. Explain any significant differences.