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 nonstd. item

Assume that the company had the following gross profit information for three representative customers:

Line Item Description	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:

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