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SlowMot Service repairs photocopiers for five multisite companies. SlowMot's costs consist of staff and material costs are directly traceable to the customer and a pool
SlowMot Service repairs photocopiers for five multisite companies. SlowMot's costs consist of staff and material costs are directly traceable to the customer and a pool of office overhead. Until recently, SlowMot estimated customer profitability by allocating the office overhead to each customer based on share of revenues.
For 2023, SlowMot reported the following results:
A | B | C | D | E | Total | |
Revenue | 312,000 | 240,000 | 386,000 | 146,000 | 254,000 | 1,338,000 |
Staff and material costs | 218,400 | 210,000 | 270,000 | 128,400 | 213,600 | 1,040,400 |
Office overhead allocated | 12,102 | 9,309 | 14,973 | 5,663 | 9,852 | 51,900 |
Hillary, SlowMot's new controller found the following information regarding the consumption of office overhead resources by customers.
Activity Area | Rate | Cost Driver Rates |
Parts ordering | $80 | Per part order |
Billing and collection | $150 | Per bill (or reminder) |
A | B | C | D | E | |
Parts ordering | 30 | 40 | 50 | 30 | 30 |
Billing and collection | 40 | 50 | 70 | 40 | 50 |
Required:
- Compute customer-level operating income using the existing information
- Compute customer-level operating income using the new information that was gathered.
- Why customer profitability analysis is important?
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