Question
Please help as soon as possible. XYZ Repairs PTY Ltd repairs cars and other automobiles for 2 companies. XYZs costs consist of the cost of
Please help as soon as possible.
XYZ Repairs PTY Ltd repairs cars and other automobiles for 2 companies. XYZs costs consist of the cost of technicians and equipment that are traceable to the customer site, and a pool of office overhead. Management at XYZ estimate customer profitability by allocating the office overhead to each customer based on share of revenues. The management accountant reported the following results for the financial year ending 2020:
| ABC | EFG | Total |
Revenues | $195,000 | $150,000 | $345,000 |
Technician and Equipment Cost | $136,500 | $131,250 | $267,750 |
Office overhead allocated | $23,894 | $18,380 | $42,274 |
Operating Profit | $34,606 | $370 | $34,976 |
The management accountant notes that the office overhead is more that 10% of total costs. Accordingly, he spends a few weeks to analyse the consumption of office overhead resources by customers. He collects the following information.
Activity | Cost-driver rate |
Service call handling | $42 per service call |
Parts ordering | $40 per web-based parts order |
Invoicing and collection | $25 per bill |
| ABC | EFG |
Number of service calls | 112 | 180 |
Number of web-based parts order | 40 | 157 |
Number of reminder letters | 22 | 67 |
Required:
1. Prepare reports on customer-level operating profit and cumulative customer-profitability using the information that the management accountant has gathered
2. Analyse these reports and recommend the options that management at XYZ should consider, with regard to individual customers, in light of the analysis of office overhead
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