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 Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 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 1 Customer 2 Customer 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, 20Y8, 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 percentages to the nearest whole percent. Enter all amounts as positive numbers. Schneider Electric Customer Profitability Report For the Year Ended December 31, 20Y8 Customer 1 Customer 2 Customer 3 Revenues $ $ $ Cost of goods sold Gross profit $ $ $ Customer service activities: Bid preparation $ $ $ Shipment Support standard items Support nonstandard items Total customer service activities $ $ $ Income from operations after customer service activities $ $ $ Gross profit as a percent of sales % % % Income from operations after customer service activities as a percent of sales % % %

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 Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 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 1 Customer 2 Customer 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, 20Y8, 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 percentages to the nearest whole percent. Enter all amounts as positive numbers. Schneider Electric Customer Profitability Report For the Year Ended December 31, 20Y8 Customer 1 Customer 2 Customer 3 Revenues $ $ $ Cost of goods sold Gross profit $ $ $ Customer service activities: Bid preparation $ $ $ Shipment Support standard items Support nonstandard items Total customer service activities $ $ $ Income from operations after customer service activities $ $ $ Gross profit as a percent of sales % % % Income from operations after customer service activities as a percent of sales % % %

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 19E

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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	Number of bid requests	$400 per request
Shipment	Number of shipments	$ 80 per shipment
Support standard items	Number of standard items ordered	$ 25 per std. item
Support nonstandard items	Number of nonstandard items ordered	$150 per nonstd. item

Assume that the company had the following gross profit information for three representative customers:

Customer 1

Customer 2

Customer 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 1	Customer 2	Customer 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, 20Y8, 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 percentages to the nearest whole percent. Enter all amounts as positive numbers.

Schneider Electric
Customer Profitability Report
For the Year Ended December 31, 20Y8
	Customer 1	Customer 2	Customer 3
Revenues	$	$	$
Cost of goods sold
Gross profit	$	$	$
Customer service activities:
Bid preparation	$	$	$
Shipment
Support standard items
Support nonstandard items
Total customer service activities	$	$	$
Income from operations after customer service activities	$	$	$
Gross profit as a percent of sales	%	%	%
Income from operations after customer service activities as a percent of sales	%	%	%

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