Question Four

The Jabiru Crocodile Jerky Supply Company has three main national retail customers

which sell the product through their networks. The costs of processing and delivering

orders has been increasing and the management have undertaken an activity analysis of

the indirect costs for the customers.

Estimated Total

expected

Use of cost driver

Indirect use of National retail

customers

Activity cost

pool

Cost driver costs cost

driver

1 2 3

Orders

processing

Number of orders

$119,700 525 340 125 60

Returns

processing

Number of returns

30,000 120 60 25 35

Delivery Number of deliveries 61,500 820 450 250 120

Rush orders Number of rush orders 42,000 70 25 22 23

Sales visits Number of visits 16,800 140 75 30 35

The total expected use of the cost driver is expressed in the numbers of the units of

measure.

Asia Pacific College of Business and Law ACT507 Accounting for Managers Semester 1, 7 of 7

The sales to each of the three national retail customers were as follows:

The sales are marked up 50 per cent on cost.

Required

a. Calculate the gross profit for each customer.

b. Calculate the activity cost rate for each activity.

c. Assign the activity costs to each of the three national retail customers.

d. Calculate the total (full) cost for each customer and the contribution of each to profit.

e. Discuss the difference between the analyses in (a) and (d).

f. Advise the management of the Jabiru Crocodile Jerky Supply Company as to

whether any changes should be made in its relationships with customers.