The Gross Margin is the subtraction of revenue minus cost. But the

next line is the problem. The customer service cost (THINK OF THIS AS OVERHEAD) is being allocated at

10% of the net revenue. Is that the best way to do that? Overall I'm stuck on this question and Ive done it over and over again but I cant get it correct.

Table 1: TOTAL Costumer Service costs (during the prior year by area of activity)

Area of activity

Product handling $672,000

Taking orders from customers $100,000

Delivering the product $140,000

Expedited the deliveries (other than automobile) $198,000

Sales visits to costumers$90,000

TOTAL Costumer Service costs $1,200,000

Table 2: TOTAL Costs Drivers ( by area of activity)

Area of activity Cost driver

Product handling Number of cases sold 800,000

Taking orders from customers Number of purchase orders 500

Delivering the product Number of miles traveled 44,800

((Expedited the deliveries

/other than automobile)) Number of expedited deliveries 2,500

Sales visits to costumers Number of sales visits 360

Exhibit 1: JB, INC. (Report of customer probability during the previous year for 4 Customers; prepared by Jim Thomas)

Saver Superstore Oscar's OddLot's Midwellen Supermarket Downtown Retail Total For JBI

Net Revenues $1,168,000 $1,192,000 $121,520 $454,500 $12,000,000

Cost of Goods <1,048,000> <1,048,000> <104,800> <393,000> <10,480,000>

Gross Margin $120,000 $144,000 $16,720 $61,500 $1,520,000

Customer service costs <116,800> <119,200> <12,152> <45,450> <1,200,000>

Customer profit $3,200 $24,800 $4,568 $16,050 $320,000

Customer profit (% of net) 0.3% 2.1% 3.8% 3.5% 2.7%

Exhibit 2: JB, INC. (Additional Info. from prior year for 4 Customers)

Saver Superstore Oscar's OddLot's Midwellen Supermarket Downtown Retail Total For JBI

Price per case 14.60 14.90 15.19 15.15 15.00

Number of cases $80,000 $80,000 $8,000 $30,000 $800,000

Number of orders 16 40 20 30 500

Number of deliveries 110 400 200 230 4,480

Miles traveled per delivery 5 19 11 4 10

Number of expedited deliveries 10 250 130 90 2,500

Number of sales visits 12 25 18 9 360