Question

Colleen Company has gathered the following data pertaining to activities it performed for two of its major customers. 

 

	Jerry, Incorporated	Kate Company
Number of orders	5	30
Units per order	1,000	200
Sales returns:
Number of returns	2	5
Total units returned	40	175
Number of sales calls	12	4

 

Colleen sells its products at $200 per unit. The firm’s gross margin ratio is 25%. Both Jerry and Kate pay their accounts promptly and no accounts receivable is over 30 days. After using business analytics software to carefully analyze the operating data for the past 30 months, the firm has determined the following activity costs:

 

Activity	Cost Driver and Rate
Sales calls	$1,000	per visit
Order processing	300	per order
Deliveries	500	per order
Sales returns	100	per return and $5 per unit returned
Sales salary	100,000	per month

 

Required:

1. Using customers as the cost objects, classify the activity costs into cost categories (unit-level, batch-level, etc.) and compute the total cost for Colleen Company to service Jerry, Incorporated and Kate Company.

2. Compare the profitability of these two customers.

Answer 1