Question
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models:
Activity Cost Pool | Activity Rates | ||||
Supporting manufacturing | $ | 3 | per direct labour-hour | ||
Order processing | $ | 15 | per order | ||
Customer service | $ | 50 | per customer | ||
Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months:
Standard Model | Deluxe Model | |||||||
Number of cases | 120 | 35 | ||||||
Number of orders | 5 | 2 | ||||||
Direct labour-hours per case | 0.20 | 0.40 | ||||||
Selling price per case | $ | 35 | $ | 55 | ||||
Direct materials cost per case | $ | 10 | $ | 12 | ||||
The companys direct labour rate is $19 per hour.
Required:
Using the companys ABC system, compute the customer margin of Cell City.
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