Customer profitability, Service Company. Instant Service (IS) repairs printers and photocopiers for five multisite companies in a tristate area. IS’s costs consist of the cost of technicians and equipment that are directly traceable to the customer site and a pool of office overhead. Until recently, IS estimated customer profitability by allocating the office overhead to each customer based on share of revenues. For 2010, IS reported the following results:

Tina Sherman, IS’s new controller, notes that office overhead is more than 10% of total costs, so she spends a couple of weeks analyzing the consumption of office overhead resources by customers. She collects following information:

1. Compute customer-level operating income using the new information that Sherman has gathered.

2. Prepare exhibits for IS similar to Exhibits 14-7 and 14-8. Comment on the results.

3. What options should IS consider, with regard to individual customers, in light of the new data and analysis of office overhead?

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Total Duran Okie Avery Wizard Grainger $260,000 $200,000 $322,000 $122,000 $212,000 $1,116,000 Revenues Technician and equipment cost Office overhead allocated Operating income 182,000 175.000 225,000 107,000 39,457 14,949 493 $ 57,543 $ 178,000 867,000 136,750 24.507 31,859 $ 46,141 $ 25,978 51 $ 8,022 $ 112.250