Sharma plc makes one standard product for which it charges the same basic price of

£20 a unit, though discounts are allowed to certain customers. The business is in the process of carrying out a profitability analysis of all of its customers during the financial year just ended.

Information about Lopez Ltd, one of Sharma’s customers, is as follows:

Lopez Ltd usually takes two months’ credit, of which the cost to Sharma is estimated at 2 per cent per month.
Required:
Calculate the profit that Sharma plc derived from sales to Lopez Ltd during last year. E-3

Transcribed Image Text:

Discount on sales price Number of units sold Manufacturing cost Number of sales orders Number of deliveries Distance travelled to deliver 5% 40,000 12 a unit 22 22 120 miles Number of sales visits from Sharma's staff 30 Sharma uses an activity-based approach to ascribing costs to customers, as follows: Cost pool Order handling Delivery costs Customer sales visits Cost driver Number of orders Miles travelled Rate Number of visits 75 an order 1.50 a mile 230 a visit