Question

Activity-Based Costing and Customer Profitability 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: Customer Service Activity Activity Base Activity Rate Bid preparation Shipment Support standard items Support nonstandard items Number of bid requests $400 per request Number of shipments $ 80 per shipment Number of standard items ordered $ 25 per std. item Number of nonstandard items $150 per nonstd. ordered item Assume that the company had the following gross profit information for three representative customers: Customer Customer Customer 1 2 3 Revenues $120,000 $200,000 $160,000 Cost of goods sold 76,800 110,000 83,200 Gross profit $43,200 $90,000 $76,800 Gross profit as a percent of sales 36% 45% 48% The administrative records indicated that the activity-base usage quantities for each customer were as follows: Activity Base Customer Customer Customer 1 2 3 Number of bid requests 14 38 55 Number of shipments 30 60 48 Number of standard items ordered 15 30 50 Number of nonstandard items ordered 5 70 80 a. Prepare a customer profitability report dated for the year ended December 31, 2048, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round vezet LLLLLLL LLL LLLLLLLL

Answer 1

Schneider Electric
Customer profitability report
For the year ended December 31,20Y8			Amount $
	Customer 1	Customer 2	Customer 3
Revenues -A	120,000	200,000	160,000
Cost of goods sold- B	76,800	110,000	83,200
Gross Profit C= A-B	43,200	90,000	76,800
Customer service activities:
Bid preparation ( 400 x no. of bid request )	5,600	15,200	22,000
Shipment ( 80 x no. of shipments )	2,400	4,800	3,840
Support Standard items ( 25 x no. of standard items orders )	375	750	1,250
Support nonStandard items ( 150 x no. of nonstandard items orders )	750	10,500	12,000
Total Customer service activities -D	9,125	31,250	39,090
Income from operations after customer service activities	34,075	58,750	37,710
E= C-D
Gross profit as a percentage of sales ( C / A )	36%	45%	48%
Income from operations after customer service activities	28%	29%	24%
as a percentage of sales ( E /A )