Cannect \ e Chegg Study l Guided S: D ascos Pract ce . L05.6 x x Customer Profitability Analysis: Boston Depot sel s office supplies to area corporations and organ zotions. Tom Deloyne, founder and CEO, has been disappointed with the operating results and the profit margin for the last two years. Business forms are mostly a 'commodity"business with low profit margins. To increase profit margins and gain competitive advantages, Delayne introduced "Desk-Top Delivery service. 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, he decided to analyze the profitebility of two of the firm's major customers Omega Internstiornal (O) and City of Albion(CA) According to the customer profitablity anolysis thot Boston Depot conducts regularty, Boston Depot hos the same amount of total soles wth both Ol and CA However, the firm earns o higher gross margin and gross margin ratio from CA than those from the sales to Ol, as clemonstrated here: Customer Profitablity Analysis Omega International $90,000 50000 City of Alblon $90,000 Product cost ce fees (175% of seles Gross margin ross margin percent Boston Depot adds o flat 17.5 percent to all sales for expenses incurred in such actvities os handling customers' requests, pick-packing, order delivery, warehousing. and dato entry. However, not all customers require the some level of services. Operation Manager, Jamle Steel, points out that CA has been a much heavler service user than Ol. She shows the following doto to support her bellef Number of requismions Requisition line (ell pick-packing) Average number of cartons in warehouse Number of mles per delvery Distribution Services Activities for Ol and CA OI 300 900 50 CA 700 2100 500 Controller Rod Jay has been investigating ways to determine the Dosts of performing various ctivities e summarized his findings Total Estimated Estimated Annual Annual Expense Cost Driver $3,000,000 Requisitions Activity Level Requisitions hendling 900,000 Pick-pock lines 600,000Pick-pock lines $10 per requisition (delivery) plus $0.30 per mile Pick-pocking 600,000 600,000 ata entry Delivery charge Steel polnts out thet octivities cost money. Two customers who request different service octivities most likely are not costing the firm the same. Required 1. Using acvity-based costing. compute the chorges per unit of service activitles 'da 11:19 AM ^ Type here to search