Question
Hector Gonzales runs the floral art company, which supplies floral arrangements to three large supermarket chains throughout Australia. Management has become concerned about the rising
Hector Gonzales runs the floral art company, which supplies floral arrangements to three large supermarket chains throughout Australia. Management has become concerned about the rising costs associated with the process and dispatch of orders. An activity analysis of the indirect costs identified the following customer related cost.
Use of cost drivers
Supermarket customers
Activity cost pool | Cost driver | Estimated indirect costs | Total expected use of cost driver** | 1 | 2 | 3 |
Orders processing | Number of orders | $200 000 | 450 | 300 | 100 | 50 |
Returns processing | Number of returns | $50 000 | 100 | 50 | 25 | 25 |
Delivery | Number deliveries | $100 000 | 700 | 400 | 200 | 100 |
Rush orders | Number of rush orders | $70 000 | 50 | 10 | 20 | 20 |
Sales visits | Number of visits | $20 000 | 100 | 50 | 25 | 25 |
- Assign the activity costs to ach of the three customers (6 marks)
- Calculate the contribution for each customer if the sales pattern for each as follows:
Supermarket customer Sales revenue**
- $350,000
- S160,000
- $210,000
**Selling price is marked up 50% on direct cost of flowers
Hints: conduct a customer profitability analysis based on the above customer related indirect costs.
- What conclusion can we draw from the customer profit analysis? Advise the management of the Floral Art Company as to whether any changes should be made in its relationships with customers. Advise Hector as to how he should go about executing these changes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started