Question

Montreal Manufacturing makes a component caled 2040. This component is inanufactured only when ardered by a customer, so Mississippi keeps no inventory of B2040. The list price is $110 per unit, but customers who place "large" orders receive a 14% discount on price. The customers are manufacturing fim. Currently, the salespeople decide whether an order s large enough to quality for the discount. When the product is finished, it is packed in cases af 10. the component rends to be exchanged or repaired, customers can come back within 14 days for free exchange or repair (Click the loon to view the data Click the icon to view the acties and cost drivers.) Read the recurements. Requirement 1. Calculate the customer-level operating income for these five customers. Use the format provided. Prepare a customer-profitability analysis by ranking the customers from moet to least profitable. Begin by calculating the customer-level operating income for these five customers. (For accounts with a $0 balance, make sure to enter in the appropriale cell Use parentheses or a ninus sign when entering operating losses.) А B с D E i Data Table Groes margin The ful cost of manufacturing a unit of B2040 18 588. In addition, Montreal incurs customer-level costs. Customer level cost driver rates are: i Data Table 5370 per order $13 per cage Order taking Product handling Rush-order processing Exchange and repair costs SGO0 per rush ander $65 per unit Information about Montreal's five biggest customers folowe. Customer д C с Print E Done 4.600 1,700 4,200 7,900 Number of units purchased Discounts given Number of ordere 1.500 0% 14% 14% 14% 14% on half the units 18 4 10 48 22 570 240 420 820 Number of cases Number of rush orders Number of units exchanged repaired 80 1 1 2 11 0 30 17 60 10 210 All customers except E ardered units in the same arder size. Customer Esorder quantity varied, so Egola discount part of the time but not all the time

Answer 1

Calculation of Operating Income
	A	B	C	D	E
Gross Sales	506,000	187,000	165,000	462,000	869,000
Less: Discount	70,840	26,180	-	64,680	60,830
Net Sales	435,160	160,820	165,000	397,320	808,170
Less: Cost of Goods Sold	404,800	149,600	132,000	369,600	695,200
Gross Margin	30,360	11,220	33,000	27,720	112,970
Less: Overhead Costs
Order taking	1,480	3,700	17,020	8,140	6,660
Product handling	7,410	3,120	1,170	5,460	10,660
Rush order processing	1,200	3,600	600	-	6,600
Exchange and Repair costs	1,105	3,900	650	1,950	13,650
Total Overhead costs	11,195	14,320	19,440	15,550	37,570
Net Operating Profit	19,165	(3,100)	13,560	12,170	75,400
Rank	II	V	III	IV	I

	A	B	C	D	E
Gross Sales	=4600*110	=1700*110	=1500*110	=4200*110	=7900*110
Less: Discount	=B3*14%	=C3*14%	0	=E3*14%	=F3*14%*50%
Net Sales	=B3-B4	=C3-C4	=D3-D4	=E3-E4	=F3-F4
Less: Cost of Goods Sold	=4600*88	=1700*88	=1500*88	=4200*88	=7900*88
Gross Margin	=B5-B6	=C5-C6	=D5-D6	=E5-E6	=F5-F6
Less: Overhead Costs
Order taking	=370*4	=370*10	=370*46	=370*22	=370*18
Product handling	=13*570	=13*240	=13*90	=13*420	=13*820
Rush order processing	=600*2	=600*6	=600*1	=600*0	=600*11
Exchange and Repair costs	=65*17	=65*60	=65*10	=65*30	=65*210
Total Overhead costs	=SUM(B9:B12)	=SUM(C9:C12)	=SUM(D9:D12)	=SUM(E9:E12)	=SUM(F9:F12)
Net Operating Profit	=B7-B13	=C7-C13	=D7-D13	=E7-E13	=F7-F13
Rank	II	V	III	IV	I