UTAH CORPORATION is analyzing the profitability of five new customers. The company purchases widgets at an average
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UTAH CORPORATION is analyzing the profitability of five new customers. The company purchases widgets at an average cost of $12 per unit and has a list price to retail customers of $14.40. Data regarding these 5 customers is as follows for the current period:
CUSTOMER | ||||||||
A | B | C | D | E | ||||
Units sold | 2,080 | 8,750 | 60,800 | 31,800 | 3,900 | |||
List selling price | $14.40 | $14.40 | $14.40 | $14.40 | $14.40 | |||
Actual selling price | $14.40 | $14.16 | $13.20 | $13.92 | $12.96 | |||
Number of purchase orders | 15 | 25 | 30 | 25 | 30 | |||
Number of customer visits | 2 | 3 | 6 | 2 | 3 | |||
Number of deliveries | 10 | 30 | 60 | 40 | 20 | |||
Miles traveled per delivery | 14 | 4 | 3 | 8 | 40 | |||
Number of expedited deliveries | 0 | 0 | 0 | 0 | 1 |
Based on their comprehensive activity study, they have determined the following activity (driver) rates:
Order taking | $ 100.00 | per purchase order | ||
Customer visits | $ 80.00 | per customer visit | ||
Deliveries | $ 2.00 | per delivery mile traveled | ||
product handling | $ 0.50 | per unit sold | ||
Expedited deliveries | $ 300.00 | per expedited delivery |
- Using an Activity-Based Costing approach, prepare the detailed AND meaningful analysis showing the customer-level operating income for each of the 5 customers listed above. Be sure to separately show both the Gross Sales and Net Sales for each customer, as well as the customer gross profit before allocated service costs as a separate line item on your analysis.
- Discuss your conclusions about the profitability of the customers based on your analysis above.
- What insights might be gained by reporting BOTH the list selling price and the actual selling price for each customer?
- Besides dropping, are there any other actions that you feel the company can make to improve their profitability?
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133428704
15th edition
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
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