Ippilito's Fresh Meats and Produce is a wholesale distributor that operates in central California. An analysis of two of the company's customers, Atriums Retirement Home and Sigma Sigma Sigma Fraternity, revealed the data that follow for a recent 12-month period.

Ippilito's uses activity-based costing to determine the cost of servicing its customers. The company had total delivery costs during the year of $576,000 and 8,000 deliveries, along with cost of $765,000 for the administrative processing of 90,000 invoices.

Required:

A. Compute the pool rates for deliveries and invoice processing.

B. Compute the operating income that Ippilito's earned from these two customers.

C. Compute the total of customer-related costs (deliveries and invoice processing) for each customer as a percentage of gross margin, and analyze the results for management. Explain any significant differences that you find.

Transcribed Image Text:

Atriums Sigma Sigma Retirement Sigma Home $680,000 90% of sales Sales revenue $270,000 80% of sales Cost of goods sold Number of deliveries Number of invoices 135 100 120 180