Knowledge Check $01$

What is the customer margin for Denny Corporation? What conclusion can you draw from this information?

$$(900),$ further analysis is required.

$$5,850,$ this is a highly profitable customer.

$$1,850,$ this is a marginally profitable customer.

$$(3,900),$ the customer should be dropped immediately.Knowledge Check $01$

Denny Corporation

Sales $ $9,000$

Direct costs:

Direct materials $ $1,800$

Direct labor $ $1,350$

Activity Cost Pools Total Cost

Machine$-$setups $ $20,000$

Special processing $150,000$

General factory $200,000$

Total overhead costs $ $370,000$

Overhead Cost for Denny Corporation

Activity Cost Pool $($a$)$ Activity Rate $($b$)$ Activity $($a$)\backslash$times $($b$)$ ABC Cost

Machine$-$setups $ $100$ setups $20$ setups $ $2,000$

Special processing $ $15$ per machine$-$hour $50$ MHs $750$

General factory $ $10$ per direct labor$-$hour $400$ direct labor$-$hours $4,000$

Total overhead cost assigned to customer $ $6,750$

What is the customer margin for Denny Corporation? What conclusion can you draw from this information?

multiple choice

$$(900),$ further analysis is required.

$$5,850,$ this is a highly profitable customer.

$$1,850,$ this is a marginally profitable customer.

$$(3,900),$ the customer should be dropped immediately.