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8 Cangage Learning eBook Show Me How Activity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bld requests $400 per request Shipment Number of shipments $80 per shipment Support standard Items Number of standard items ordered 525 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. tem Assume that the company had the following gross profit information for three representative customers Customer Customer 3 Revenues Cost of goods sold Gross profit Gross profit as a percent of sales Customer 1 $120,000 76,800 $43,200 $200,000 110,000 $90,000 454 $160,000 83,200 $76,800 48% The administrative records indicated that the activity-base usage quantities for each customer were as follows: Activity Base Number of bid requests Number of shipments Number of standard items ordered Customer 1 Customer 2 Customer 38 55 30 50 48 15 30 50 Number of nonstandard items ordered 5 70 a. Prepare a customer profitability report dated for the year ended December 31, 2018, showing (1) the income from operations inter customer service activities, 121 og angege Learning eBook Show Me How TOMOTSING SITE a. Prepare a customer profitability report dated for the year ended December 31, 2048, showing (1) the income from operations after customer service activitles, the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column each customer. Round percentages to the nearest whole percent. Enter all amounts as positive numbers. Schneider Electric Customer Profitability Report For the Year Ended December 31, 2018 Customer 1 Customer 2 Customer 3 Revenues Cost of goods sold Gross profit Customer service activities: Bid preparation Shipment Support standard Items Support nonstandard items ind addit 8 Total customer service activities Income from operations after customer service activities Gross profit as a percent of sales Income from operations after customer service activities as a percent of sales Feed Check My Work a Calculate customer service activity expenses for each Customer as Activity Rate Activity Base Usage Activity Cost Set up a product profitability report for each Customer as Revenue Cost of goods sold Gross profit Gross profit Customer service activity expenses income from operations after customer service activities For each customer, calculate Groen profit as a percentage of salg - Gross profita Incomes from operations after customer service activities as a percent of sales income from operations after customer service activities Sales Gross profit as a percent of sales Income from operations after customer service activities as a percent of sales 96 % Feedback Check My Work a. Calculate customer service activity expenses for each Customer as: Activity Ratex Activity-Base Usage - Activity Cost Set up a product profitability report for each Customer as: Revenues. Cost of goods sold Gross profit, Gross proft - Customer service activity expenses income from operations for customer service activities For each customer, calculate Gross profit as a percentage of sales Gross profit. Sie Income from operations after customer service activities as a percent of sales - income from operations after customer service activibos - Salon Leoming Objectives b. Interpret the report in part (0) The gross profit as a percent of sales indicated that Customer 1 was the least profitable, while Customer 3 was the most profitable. After deducting the activity costs associated with customer service activities, Customer 3 became the least profitable, while fustomer 1 became nearly as profitable as Customer 2. The reason is because Customer 3 consumed much more customer service activities than did the other customers. Apparently, Customer 3 ordered nonstandard products that required specialized bid requests. In addition, Customer required more shipments, Indicating smaller shipments to a customer's location, rather than a few large shipments. Feedback Check My Work Correct Feed Check My Work Partially correct