Question
HQ Drugs inc is a distributor of pharmaceutical products. Its ABC system has five activities: Activity Area Cost Driver Rate in 2015 1. Order processing
HQ Drugs inc is a distributor of pharmaceutical products. Its ABC system has five activities:
Activity Area
Cost Driver Rate in 2015
1.
Order processing
$38 per order
2.
Line-item ordering
$2 per line item
3.
Store deliveries
$48 per store delivery
4.
Carton deliveries
$3 per carton
55.
Shelf-stocking
$13 per stocking-hour
Rick Flair, the controller of HQ Drugs,wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and-pop single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August
2015 are asfollows:
| Baltimore | Shilo |
| Pharmacy | Pharmacy |
Total orders | 16 | 11 |
Average line items per order | 9 | 19 |
Total store deliveries | 6 | 9 |
Average cartons shipped per store delivery | 23 | 20 |
Average hours of shelf-stocking per store delivery | 0 | 0.75 |
Average revenue per delivery | $2,400 | $1,850 |
Average cost of goods sold per delivery | $2,050 | $1,500
|
Requirement 1. Use the ABC information to compute the operating income of each customer in August
20152015.
Comment on the results and what, ifanything, Flair should do. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for operating losses.)
| Baltimore |
| Pharmacy |
Revenues |
|
Cost of goods sold |
|
Gross margin |
|
Operating costs |
|
Operating income (loss) |
|
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