Sparkle, Inc., makes paper towels that it sells to several different types of customers: wholesale distributors, warehouse stores, and grocery stores. The wholesale distributor requires smaller cases that it can deliver to convenience stores and other small users, such as office buildings. This specialty pack-out requires Sparkle to use a different packaging machine and changes the configuration of the pallets it uses to ship out goods (it gets more cases on a pallet, but fewer actual paper towels because of the bulky boxes). The company has compiled the following information on its customers and the services they use from Sparkle.

REQUIRED:

a. Develop ABC charging rates for each of the activities.

b. Use this rate to charge out the cost of the various services to the customers.

c. Develop customer profitability statements for each type of customer.

d. Calculate the percentage profit for each type of customer.

e. Which customer class is the best for Sparkle, Inc.? Which is the worst? Why?

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Sparkle, Inc. Activity Cost Driver Distributors Warehouse Stores Grocery Stores Sales NA NA $10,000,000 $20,000,000 $15,000,000 Cost of goods sold NA NA $4,900,000 $9,600,000 $7,350,000 Order processing $750,000 Orders 100,000 25,000 75,000 Cases $2,500,000 Coses pocked 2,000,000 1,250,000 800,000 Palletizing $1,500,000 Pallets made 250,000 125,000 80,000 Delivery $2,000,000 Deliveries 100,000 25,000 100,000 Invoices $1,250,000 Invoices 250,000 50,000 1,500,000 Returns $350,000 Returns 500 100 400