Emery Company sells small machine parts to heavy equipment manufacturers for an average price of $1.05 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is required. Scheduling is also needed to coordinate the many different orders that come in and place demands on the plants manufacturing resources. Emery also inspects a sample of the products each time a batch is produced to ensure that the customers speci?cations have been met. Inspection takes essentially the same time regardless of the type of part being produced. Emerys Cost Accounting Department has provided the following budgeted data for customerrelated activities and costs (the amounts expected for the coming year):

* This cost does not include the cost of the following customer-related activities: Customer-related activity costs: Processing sales orders............ $ 2,310,000 Scheduling production............ 1,260,000 Setting up equipment............. 3,780,000 Inspecting batches.............. 5,040,000 Total.................... $12,390,000 Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Calculate the pro?tability of each customer type. Discuss the problems with this measure of customer pro?tability. 2. Assign the customer-related activity costs to each customer type using activity rates. Now calculate the pro?tability of each customer category. As a manager, how would you use this information?