Customer profitability, distribution. Figure Four is a distributor of pharmaceutical products.

Its activity-based costing system has five activity areas:

Activity Area Cost Driver and 2007 Rate 1. Order processing 2. Line item ordering 3. Store deliveries 4. Carton deliveries 5. Shelf-stocking

$40 per order

$ 3 per line item

$50 per store delivery

$ 1 per carton

$16 per stocking-hour Syed Alam, the controller of Figure Four, wants to use this activity-based costing system to examine individual customer profitability within each distribution market. He focuses first on the “mom and pop” single-store distribution market. Two customers are used to exemplify the insights available with the activity-based costing approach. Data pertaining to these two customers in August 2007 are as follows:
Maple Oak Hill Pharmacy Pharmacy Total orders 12 10 Average line items per order 10 18 Total store deliveries 6 10 Average cartons shipped per store delivery 24 20 Average hours ofshelf-stocking per store delivery 0 0.5 Average revenue per delivery $2,640 $1,980 Average cost of goods sold per delivery $2,310 $1,815 Required 1. Use the activity-based costing information to compute the operating income of each customer in August 2007. Comment on the results.
2. Alam ranks the individual customers in the “mom and pop” single-store distribution market on the basis of operating income. The cumulative operating income of the top 20% of customers is $55,680. Figure Four reports negative operating income of $21,247 for the bottom 40% ofits customers. Make four recommendations that you think Figure / - Four should consider in light of this new customer profitability information.
6-2j5 Direct materials efficiency, mix and yield variances. (Chapter Appendix, CMA adapted) The V7 Energy Products Company produces a gasoline additive, Gas Gain, that increases engine effi¬
ciency and improves gasoline mileage. The actual and budgeted quantities (in litres) ofmaterials required to produce Gas Gain and the budgeted prices ofmaterials in August 2007 are as follows:
Chemical Actual Quantity Budgeted Quantity Budgeted Price Echol 24,080 25,200 $0.22 Protex 15,480 16,800 0.47 Benz 36,120 33,600 0.17 CT-40 10,320 8,400 0.32 Required 1. Calculate the total direct materials efficiency variance for August 2007.
2. Calculate the total direct materials mix and yield variances for August 2007.
3. What conclusions would you draw from the variance analysis?