Activity-based costing and customer profitability OBJ. 5 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 bid requests $200/request Shipment Number of shipments $16/shipment Support standard items Number of standard items ordered $20/std. item Support nonstandard items Number of nonstandard items ordered $75/nonstd. item Assume that the company had the following gross profit information for three representative customers:

Customer 1 Customer 2 Customer 3 Revenue $39,000 $26,000 $31,200 Cost of goods sold 24,180 13,520 15,600 _______ _______ _______ Gross profit $14,820 $12,480 $15,600 _______ _______ _______ _______ _______ _______ Gross profit as a percent of sales _______ 38% _______ 48% _______ 50% _______ _______ _______ The administrative records indicated that the activity-base usage quantities for each customer were as follows:

Activity Base Customer 1 Customer 2 Customer 3 Number of bid requests 12 8 25 Number of shipments 16 24 45 Number of standard items ordered 48 38 56 Number of nonstandard items ordered 18 30 54

a. Prepare a customer profitability report dated for the year ended December 31, 2016, showing (1) the income from operations after customer service activities, (2) 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 for each customer.

Round percentages to the nearest whole percent.

b. Interpret the report in part (a).