Question

#9

Instructions Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Activity Rate Customer Service Activity Bid preparation Activity Base Number of bld requests $400 per request Shipment $80 per shipment Support standard items Support nonstandard Items Number of shipments Number of standard items ordered Number of nonstandard items ordered $25 per std. item $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers:

Answer 1

Answer is given below

1 Customer profitability analysis based on ABC Customer 1 $120,000 $76,800 $43,200 Customer 2 $200,000 $110,000 $90,000 Customer 3 $160,000 $83,200 $76,800 Sales Cost of goods sold Gross profit Less: Customer service costs Bid preparation Shipment Support standard items Support non standard items Total Customer service cost Income from Operations Gross profit as percent of Sales $5,600 $2,400 $375 $750 $9,125 $34,075 36.0% $15,200 $4,800 $750 $10,500 $31,250 $58,750 45.0% $22,000 $3,840 $1,250 $12,000 $39,090 $37,710 48.0% Income from Operations after customer service activities as percent of Sales 28.4% 29.4% 23.6% Working note: Cost per activity $400 $80 Bid preparation Shipment Support standard items Support non standard items $25 Per request Per shipment per std item per non std item $150 Number of activities consumed Customer 1 Customer 2 Customer 3 Bid preparation Shipment Support standard items Support non standard items Activities consumed * Activity Cost Rate Bid preparation Shipment Support standard items Support non standard items Customer service costs Customer 1 $5,600 $2,400 $375 $750 $9,125 Customer 2 $15,200 $4,800 $750 $10,500 $31,250 Customer 3 $22,000 $3,840 $1,250 $12,000 $39,090