Question

Activity-Based Costing and Customer-Driven Costs

Lambo Auto Limited manufactures a limited edition luxury car that it sells through distributors. The company sells the cars to its distributors for $150,000 each and is very willing to accommodate the requirements of its distributors in order to increase volume. Even though the car sells for a high price, the small batch production methods result in only modest profits.

In addition to the normal manufacturing and operating costs that result in a margin on each auto sold of about $10,000, the company incurs some additional costs because of its close relationship to its distributors. These include sales and service calls ($3,500 each); engineering changes ($15,000 each); special packaging for overseas shipment ($15,000 each); and order processing costs ($3,500 each). While these costs seem quite high, the company believes that it controls the demands of its distributors to keep the costs low.

Below is a chart of the additional costs required by each of its distributors:

Distributor	Cars Sold		Sales/Service Calls		Changes Made		Packaging Requests		Orders Placed
Atkins	200		20		0		0		6
Brower	200		40		15		0		8
Caldwell	200		80		75		9		15
Driscoll	200		160		125		18		30

Required:

Determine the profitability of each customer and recommend action to the company.

	Operating Income
Atkins	$fill in the blank 1
Brower	$fill in the blank 2
Caldwell	$fill in the blank 3
Driscoll	$fill in the blank 4
Total	$fill in the blank 5