Company, a growing mail-order clothing and accessory company, is concerned about its growing MSDA expenses. It therefore examined its customer ordering patterns for the past year and identified four different types of customers, as illustrated in the following table.

Prices are set so that cost of goods sold is on average about 70 % of the sales price. Customers pay actual shipping charges, but extra processing is required for overnight deliveries. Neumann has developed the following activity cost driver rates for its support costs:

Requirement (a) Using activity-based costing, determine the yearly profit associated with each of the four customers described. (Enter a "0" for any zero amounts. Use parentheses or a minus sign for loss amounts or percentages. Round dollar amounts to the nearest dollar and round the gross profit (% of sales) to the nearest whole percent, X%.)

Activity Activity Cost Driver Rate

Process mail orders $ 3 per order

Process phone orders $ 55 per hour

Process returns $ 6 per item returned

Process overnight delivery requests $ 9 per request

Maintain customer relations $ 50 per year

(send catalogs and respond to customer

comments or complaints)

	cust 1	cust 2	cust 3	cust 4
Initial sales	$1400	$2500	$2800	$3300
number returned	0	6	3	21
$ value of return	0	$190	$520	$1800
number of oders per year	1	8	7	14
phone orders per year	1	0	0	14
Time spent on phone	.25 hours	0	0	1.5 hours
Overnight deliveries	1	0	0	14
Regular deliveries	0	8	7	0

	Customer Type 1		Customer Type 2		Customer Type 3		Customer Type 4
Sales
Less returns
Net sales
Cost of goods sold, based on net sales
Process mail orders
Process phone orders
Process returns
Process overnight delivery requests
Maintain customer relations
Gross profit
Gross profit (% of sales)		%		%		%