Boston Depot sells office supplies to area corporations and organizations. The business seems to be as busy as ever. Yet, the operating income has been declining. To help identify the root cause of declining profits, the firm decided to analyze the profitability of two of the firm's major customers: Omega International (OI) and City of Albion (CA). According to the customer profitability analysis that Boston Depot conducts regularly, Boston Depot has the same total sales with both Of and CA, as demonstrated here: Sales Direct product cost Gross margin Customer Profitability Analysis Omega International City of Albion $80,000 $80,000 50,000 48,000 $30,000 $32,000 Boston Depot also has service expenses incurred in such activities as handling customers' requests, pick-packing, order delivery, warehousing, and data entry. The following data about the two customers is provided: Distribution Services Activities for OI and CA CA Number of requisitions 300 700 Requisition line (all pick-packing) 900 2,100 Average number of cartons in warehouse 50 Number of miles per delivery 5 500 6 The controller has been investigating ways to determine the costs of performing various activities. He summarized his findings: Total Estimated Estimated Annual Activity Annual Expense Cost Driver Activity Level Requisitions handling $3,000,000 Requisitions 300,000 Warehouse 1,050,000 Number of cartons 70,000 Pick-packing 900,000 Pick-pack lines 600,000 Data entry 600,000 Pick-pack lines 600,000 Delivery charge $10 per requisition (delivery) plus $0.30 per : mile Save All Answers 1. If Boston Depot uses a standard rate of service expenses as 17.5% of sales to determine customer margins, which customer is more profitable? Besides, do you think this is a good way to determine customer profitability? Why? (3 points) 2. Using activity-based costing, compute the customer margins for each of the customers. (6 points)