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Bountiful Harvest Distribution: Applying ABC Methods to Customer Profitability Analysis Bountiful Harvest Distribution delivers supplies to small grocers throughout the region. Bountiful currently allocates order

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Bountiful Harvest Distribution: Applying ABC Methods to Customer Profitability Analysis Bountiful Harvest Distribution delivers supplies to small grocers throughout the region. Bountiful currently allocates order and delivery service costs based on a simple percentage of total revenue. Estimated revenue for the year is $5,160,000. A consultant has analyzed the order and delivery service costs and identified four activities. Data on these activities are: Order and Delivery Service Costs Activity Cost Driver Cost Driver Volume Processing orders number of orders 550,000 4,000 orders Loading trucks number of items $100,000 90.000 items Delivering goods number of orders $60,000 4,000 orders Processing invoice number of invoices $48.000 6.000 invoices Total overhead S258,000 The consultant has suggested analyzing the impact of switching from the traditional cost allocation method to ABC for three customers; Rosy's Corner Market, Katy's Fine Foods, and Amy's City Market. Below are relevant data these three customers: Rosy's Katy's Amy's Revenue 560,000 $90,000 $150,000 Cost of supplies sold 548.000 564,000 S120.000 Number of orders sol 300 Number of items 550 1.600 Number of invoices 12 600 Required (be sure to document your computations): 1. Compute the predetermined order and delivery service cost rate using the traditional, single-pool method currently used by Bountiful. 2. Determine the customer-level gross profit (revenue less cost of supplies sold less cost of order and delivery service) for each of the three customers under the current allocation method. 3. Compute the predetermined order and delviery service costs rates using the proposed ABC method. 4. Determine the customer-level gross profit (revenue less cost of supplies sold less cost of order and delivery service) for each of the three customers under the proposed ABC allocation method 5. Briefly compare your solutions between requirements 2 and 4. 25 1.750 18

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