Customer-related costs Nehls Company is concerned about its growing cus¬ tomer-related expenses. The company currently allocates customer capacity-

104 Chapter 3 related support costs on the basis of revenues, at a rate of 30% of sales revenue. After discovering that ordering patterns vary quite dramatically across customers, it proposed a more accurate method that would assign costs of $35 per order.

Data on two customers appear below.

REQUIRED

(a) Compute the customer capacity-related support costs assigned to customers 1 and 2 under the current system.

(b) Compute the customer capacity-related support costs assigned to customers 1 and 2 under the proposed system.

(c) Comment on what the two systems reveal about the profitability of cus¬ tomers 1 and 2.(LO 1, 3)

Transcribed Image Text:

CUSTOMER 1 CUSTOMER 2 Sales $1200 $1200 Cost of goods sold 750 750 Number of orders per year 2 12