Question

Exercise 3D: Product and customer profitability analysis (Value: 10 points) LMN Excercise, Inc. manufactures portable infrared saunas. It markets and sells them to gyms and spas who in turn sell them to their individual clients. The company has a generic model but also makes models to customer specifications, especially for gyms. The cost actifities and their respective rates in the company's activity costing system are as follows: Cost Activity Activity Rate Design with customer specifications $287 per each design Order Procesing $211 per order Customer Service $470 per client Direct support labor $19.80 per-labor hour Management asked you for a profitability analysis for customer Z. You have been provided the following information regarding this customer's orders in the past 12 months. Generic model Number of Saunas Order quantity Number of designs with specification Direct labor for each sauna Sale price per sauna Cost of materials per sauna 10 2 0 31 hours $1,815 $508 Model with specifications 4 1 4 35 hours $2,530 $634 Required: Calculate the margin or profitability of customer Z.

Answer 1

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LMN Exercise
Allocation table
Generic Model		A	B	C=A*B
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Design with customer specifications	Number of design	287.00	-	-
Order processing	Number of orders	211.00	2.00	422.00
Customer service	Number of client	470.00	1.00	470.00
Direct Support labor	Labor Hours	19.80	31.00	613.80
Total Overhead assigned				1,505.80	D
Units produced				10.00	E
Overhead assigned per unit				150.58	F=D/E
Specific Model		See A	G	H=A*G
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Design with customer specifications	Number of design	287.00	4.00	1,148.00
Order processing	Number of orders	211.00	1.00	211.00
Customer service	Number of client	470.00	1.00	470.00
Direct Support labor	Labor Hours	19.80	35.00	693.00
Total Overhead assigned				2,522.00	I
Units produced				4.00	J
Overhead assigned per unit				630.50	K=I/J
Unit cost	Generic Model	Specific
Direct Materials	508.00	634.00
Direct Labor	61.38	173.25
Allocated OH per unit	150.58	630.50	See F, K
Total manufacturing cost	719.96	1,437.75	L
Profitability Analysis	Generic Model	Specific
Market price	1,815.00	2,530.00	M
Manufacturing cost per unit	719.96	1,437.75	See L
Gross profit per unit	1,095.04	1,092.25	N=M-L