Drug Inc. is a distributor of pharmaceutical products for pharmacies. Drug Inc. has always used a 6% markup on the cost of goods sold to determine the selling prices. 

Laura McConnel, the CEO, noted that profitability has been declining in the last few years. Laura suggested implementing an ABC system to help improve understanding of customer profitability. The relevant common selling and administrative expenses are as shown below:   

Activity Cost Pool	Activity Measure	Total Cost	Total Activities
Manual order processing	Number of manual orders	$  100,000	1,600 orders
Electronic order processing	Number of electronic orders	$ 50,000	7,500 orders
Customer deliveries	Number of deliveries	$ 300,000	3,000 deliveries
Line item picking	Number of line items picked	$ 40,000	2,000 line items

Data on two customers have been gathered: Westside Pharmacy and Southside Pharmacy. Sales for both pharmacies were $39,200 in the year 2019.   

Activity Measure	Westside	Southside
Number of manual orders	-	20
Number of electronic orders	10	-
Number of deliveries	5	9
Number of line items picked	20	45

Determine the customer margin for Westside and Southside using ABC costing and for your recommendations on how to increase company profitability.

Answer rating: 100% (QA)

Answer Step by Step Explanation Computation of ABC rate Activity OH CostsCol 1 No of activi... View the full answer