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Activity-Based Costing and Customer Profitability Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine

Activity-Based Costing and Customer Profitability

Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate:

Customer Service Activity Activity Base Activity Rate
Bid preparation Number of bid requests $420 per request
Shipment Number of shipments $90 per shipment
Support standard items Number of standard items ordered $30 per std. item
Support nonstandard items Number of nonstandard items ordered $180 per non std. item

Assume that the company had the following gross profit information for three representative customers:

Customer 1 Customer 2 Customer 3
Revenues $130,000 $210,000 $180,000
Cost of goods sold (81,900) (113,400) (90,000)
Gross profit $48,100 $96,600 $90,000
Gross profit as a percent of sales 37% 46% 50%

The administrative records indicated that the activity-base usage quantities for each customer were as follows:

Activity Base Customer 1 Customer 2 Customer 3
Number of bid requests 15 40 60
Number of shipments 25 55 50
Number of standard items ordered 20 35 52
Number of nonstandard items ordered 6 65 85

a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the operating income after customer service activities, (2) the gross profit as a percent of sales, and (3) the operating income after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent.

Metroid Electric
Customer Profitability Report
For the Year Ended December 31, 20Y8
Customer 1 Customer 2 Customer 3
Revenues $ $ $
Cost of goods sold
Gross profit $ $ $
Customer service activities:
Bid preparation $ $ $
Shipment
Support standard items
Support nonstandard items
Total customer service activities $ $ $
Operating income after customer service activities $ $ $
Gross profit as a percent of sales % % %
Operating income after customer service activities as a percent of sales % % %

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