Emery Company sells small machine parts to heavy equipment manufacturers for an average price of $3.90 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. The 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	32,000	3,200
Average order size	3,200	32,000
Number of setups	37,250	5,250
Scheduling hours	47,750	5,250
Inspections	37,250	5,250
Average unit cost*	$2.16	$2.16

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

Customer-related activity costs:
Processing sales orders	$2,112,000
Scheduling production	954,000
Setting up equipment	3,060,000
Inspecting batches	4,080,000
Total	$10,206,000

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	$fill in the blank 1
Customer-related activity costs	$fill in the blank 2

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.)
$fill in the blank 3

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

Processing sales orders	$fill in the blank 4	per order
Scheduling production	$fill in the blank 5	per scheduling hour
Setting up equipment	$fill in the blank 6	per setup
Inspecting batches	$fill in the blank 7	per inspection

Calculate the profitability of each customer category.

	Customer Profitability
Frequent	$fill in the blank 8
Infrequent	$fill in the blank 9

Answer rating: 100% (QA)

Solution 1 Sales revenue 399360000 Customerrelated activity costs 5103000 Sales revenue Sales orders ... View the full answer