Emery Company sells small machine parts to heavy equipment manufacturers for an average price of $1.30 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is required. Scheduling is also needed to coordinate the many different orders that come in and place demands on the plant's manufacturing resources. Emery also inspects a sample of the products each time a batch is produced to ensure that the customer's specifications have been met. Inspection takes essentially the same time regardless of the type of part being produced. Emery's Cost Accounting Department has provided the following budgeted data for customer-related activities and costs (the amounts expected for the coming year):

Frequently Ordering

Customers

Less Frequently

Ordering Customers

Sales orders 30,0003,000

Average order size 3,00030,000

Number of setups 35,2505,250

Scheduling hours 45,7505,250

Inspections 35,2505,250

Average unit cost* $0.7 $0.7

*This cost does not include the cost of the following "customer-related" activites:

Customer-related activity costs:

Processing sales orders $2,970,000

Scheduling production 1,377,000

Setting up equipment 4,374,000

Inspecting batches 5,832,000

Total $14,553,000

Required:

1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type.

Sales revenue $

Customer-related activity costs $

Calculate the profitability of each customer type. (Because sales revenues for each customer type are equal, the profitability will be the same for each customer type.)

$

2. Assign the customer-related activity costs to each customer type using activity rates. Enter the appropriate activity rates below.

Processing sales orders $ per order

Scheduling production $ Per scheduling hour

Setting up equipment $ per setup

Inspecting batches $ per inspection

Calculate the profitability of each customer category.

Customer Profitability

Frequent $

Infrequent $