Question
Activity-Based Costing and Customer Profitability Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine
Activity-Based Costing and Customer Profitability
Metroid 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 | $420 per request |
Shipment | Number of shipments | $90 per shipment |
Support standard items | Number of standard items ordered | $30 per std. item |
Support nonstandard items | Number of nonstandard items ordered | $180 per non std. item |
Assume that the company had the following gross profit information for three representative customers:
Customer 1 | Customer 2 | Customer 3 | ||||||
Revenues | $130,000 | $210,000 | $180,000 | |||||
Cost of goods sold | (81,900) | (113,400) | (90,000) | |||||
Gross profit | $48,100 | $96,600 | $90,000 | |||||
Gross profit as a percent of sales | 37% | 46% | 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 | 15 | 40 | 60 |
Number of shipments | 25 | 55 | 50 |
Number of standard items ordered | 20 | 35 | 52 |
Number of nonstandard items ordered | 6 | 65 | 85 |
a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the operating income after customer service activities, (2) the gross profit as a percent of sales, and (3) the operating income 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.
Metroid Electric | |||
Customer Profitability Report | |||
For the Year Ended December 31, 20Y8 | |||
Customer 1 | Customer 2 | Customer 3 | |
Revenues | $ | $ | $ |
Cost of goods sold | |||
Gross profit | $ | $ | $ |
Customer service activities: | |||
Bid preparation | $ | $ | $ |
Shipment | |||
Support standard items | |||
Support nonstandard items | |||
Total customer service activities | $ | $ | $ |
Operating income after customer service activities | $ | $ | $ |
Gross profit as a percent of sales | % | % | % |
Operating income after customer service activities as a percent of sales | % | % | % |
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