Carbon Company has two classes of customers designated as C Classand D Class. The C Class customers
Question:
Willis Johnson, a recently hired cost accountant, suggested thatthe problem may have to do with unfair cost assignments andsuggested that customer costs be assigned to each customer categoryusing activity-based costing. He collected the followinginformation about customer-related activities and costs for themost recent quarter:
Activity | Activity cost | Cost driver | Level of cost driver |
Processing sales orders | $1,760,000 | Number of sales orders | 440 sales orders |
Selling goods | $640,000 | Number of sales calls | 80 sales calls |
Servicing goods | $600,000 | Number of service calls | 300 service calls |
C Class | D Class | |
Total units ordered | 200,000 | 200,000 |
Manufacturing cost per unit | $100 | $100 |
Sales orders | 400 | 40 |
Sales calls | 40 | 40 |
Service calls | 200 | 100 |
Required: Determine the profitability ofeach customer class using the activity information.
Accounting
ISBN: 978-0324662962
23rd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren