Applying ABC Methods to Customer Profitability Analysis.

Applying ABC Methods to Customer Profitability Analysis Bountiful Harvest Distribution delivers supplies to small grocers throughout the region. Bountiful currently allocates order and delivery service costs based on a percentage of total revenue. Estimated revenue for the year is $5.16 Million. A consultant has analyzed the order and delivery service costs and identified four activities. Data on these activities are: Activity Cost Driver Cost Driver Volume Process order number of orders $50,000 4,000 orders Load truck number of items $100,000 80,000 items Deliver goods number of orders $60,000 4,000 orders Process invoice number of invoices $48,000 6,000 invoices Total overhead $ 258,000 Three of Bountiful's customers are Rosy's Corner Market, Katy's Fine Foods, and Amy's City Market. Below are data on expected orders and deliveries to these three customers: Rosy's Katy's Amy's Revenue $60,00 $90,000 $150,000 Cost of supplies sold $48,000 $64,000 $120,000 Number of orders 50 300 25 550 1,600 1,750 Number of items Number of invoices 12 600 18 Required: 1. Determine the gross profit (revenue less cost of supplies sold less cost of order and delivery service) for each of the three customers under the current allocation method. 2. Determine the gross profit (revenue less cost of supplies sold less cost of order and delivery service) for each of the three customers under the proposed ABC allocation method