Question 4

Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:

Order processing cost per order

$7

Additional costs if order must be expedited (rushed)

$9.50

Customer technical support calls (per call)

$12

Relationship management costs (per customer per year)

$1200

In addition to these costs, product costs amount to 75% of Sales.

In the prior year, Wizard had the following experience with one of its customers, Chester Company:

Sales

$16,000

Number of orders

160

Percent of orders marked rush

70%

Calls to technical support

80

Required: Calculate the profitability of the Chester Company account.

Question 6

PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:
Direct material		$625,000
Direct labor		375,000
Variable overhead		125,000
Fixed overhead		1,500,000
Total cost		$2,625,000

At the start of the current year, the company received an order for 3,200 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company