BananaRama (BR) Ltd is a company that provides cleaning services to offices and homes. BR Ltd's...

 

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BananaRama (BR) Ltd is a company that provides cleaning services to offices and homes. BR Ltd's costs mainly consist of two types: direct costs (cleaning team and cleaning supplies) that are traceable to clients and office overheads that are to be allocated. As such, BR Ltd has always been allocating office overheads to its various clients. The company's relevant reporting in 2020 is as below: Acton Bexley Croydon Denmark Hill Enfield Total $40,000 $27,000 $39,000 $23,000 $35,000 $164,000 Revenues Cleaning team & supplies Allocated overhead 1.500 Operating income 17,800 6,000 13.500 21,000 20.000 24.000 1.200 1.000 Number of inquiry Number of order Number of invoice Handling customer inquiries Ordering supplies Invoicing and collection Maintaining customer records Lately, a qualified accountant by the name of Beverly Butt has joined BR Ltd and she insists that allocating overheads would not be an ideal way of treating fixed costs. To that end, she has conducted some analysis and has put forward the following information: Activity area Rate per cost driver Cost driver $40 $10 $12 $8 16.000 900 6,100 Acton Bexley Croydon 190 280 60 150 200 80 50 100 100 Per inquiry Per order Per invoice Per inquiry 20,500 101,500 1,300 5,900 13,200 56,600 Denmark Hill Enfield 210 140 190 75 Total 880 185 805 150 475 Required: a) Using the new information on overhead costs that is gathered by Beverly Butt, calculate customer-level operating income for all five customers. Hint: also make sure you compute the gross profit and total overheads allocated. (21 marks) b) In considering your calculation of the customer-level operating income above that is based on the details from Beverly's analysis, what should BR Ltd be doing in respect of the various customers? BananaRama (BR) Ltd is a company that provides cleaning services to offices and homes. BR Ltd's costs mainly consist of two types: direct costs (cleaning team and cleaning supplies) that are traceable to clients and office overheads that are to be allocated. As such, BR Ltd has always been allocating office overheads to its various clients. The company's relevant reporting in 2020 is as below: Acton Bexley Croydon Denmark Hill Enfield Total $40,000 $27,000 $39,000 $23,000 $35,000 $164,000 Revenues Cleaning team & supplies Allocated overhead 1.500 Operating income 17,800 6,000 13.500 21,000 20.000 24.000 1.200 1.000 Number of inquiry Number of order Number of invoice Handling customer inquiries Ordering supplies Invoicing and collection Maintaining customer records Lately, a qualified accountant by the name of Beverly Butt has joined BR Ltd and she insists that allocating overheads would not be an ideal way of treating fixed costs. To that end, she has conducted some analysis and has put forward the following information: Activity area Rate per cost driver Cost driver $40 $10 $12 $8 16.000 900 6,100 Acton Bexley Croydon 190 280 60 150 200 80 50 100 100 Per inquiry Per order Per invoice Per inquiry 20,500 101,500 1,300 5,900 13,200 56,600 Denmark Hill Enfield 210 140 190 75 Total 880 185 805 150 475 Required: a) Using the new information on overhead costs that is gathered by Beverly Butt, calculate customer-level operating income for all five customers. Hint: also make sure you compute the gross profit and total overheads allocated. (21 marks) b) In considering your calculation of the customer-level operating income above that is based on the details from Beverly's analysis, what should BR Ltd be doing in respect of the various customers?

Answer rating: 100% (QA)

To calculate customerlevel operating income using Beverly Butts new information on overhead costs we need to follow these steps a Calculate CustomerLe... View the full answer