May Limited has been involved in the sale of computer equipment. Recently the company began offering...

 

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May Limited has been involved in the sale of computer equipment. Recently the company began offering IT maintenance services to Small and Medium sized companies. This new branch of the business currently has 3 customers and wants to evaluate the profitability of each customer. The following details relate to the various activities that the company undertakes in relation to the customers. Total cost driver usage 550 96 4.070 miles The following information relates to each of the three respective customers. A, B, and C: A B Total (£) 110.000 16.320 Equipment delivery costs 10.175 Activity Sales order processing Sales visits Number of sales orders Number of sales visits Cost driver number of sales orders number of sales visits number of miles travelled 100 26 Number of miles per delivery Number of deliveries Operating profit contribution (£) 50,000 REQUIRED 27 60 170 40 30 45 42,000 C 280 30 20 55 87,000 a) Calculate the cost driver rates for each activity. b) Calculate the profitability of each of the three customers above. c) Discuss the benefits of carrying out customer profitability analysis. May Limited has been involved in the sale of computer equipment. Recently the company began offering IT maintenance services to Small and Medium sized companies. This new branch of the business currently has 3 customers and wants to evaluate the profitability of each customer. The following details relate to the various activities that the company undertakes in relation to the customers. Total cost driver usage 550 96 4.070 miles The following information relates to each of the three respective customers. A, B, and C: A B Total (£) 110.000 16.320 Equipment delivery costs 10.175 Activity Sales order processing Sales visits Number of sales orders Number of sales visits Cost driver number of sales orders number of sales visits number of miles travelled 100 26 Number of miles per delivery Number of deliveries Operating profit contribution (£) 50,000 REQUIRED 27 60 170 40 30 45 42,000 C 280 30 20 55 87,000 a) Calculate the cost driver rates for each activity. b) Calculate the profitability of each of the three customers above. c) Discuss the benefits of carrying out customer profitability analysis.

Answer rating: 100% (QA)

a To calculate the cost driver rates for each activity we divide the total cost of each activity by the total cost driver usage Cost driver rate for Sales order processing Cost driver rate Total cost ... View the full answer