Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost PoolActivity RatesSupporting manufacturing$2per direct labour-hourOrder processing$12per orderCustomer service$53per customer Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Standard ModelDeluxe ModelNumber of cases 120 20 Number of orders 5 2 Direct labour-hours per case 0.25 0.40 Selling price per case$32 $52 Direct materials cost per case$9 $12 The company’s direct labour rate is $12 per hour. Required:Using the company’s ABC system, compute the customer margin of Cell City.

The net income is calculated as difference between revenue and expenses. The customer margin is the…

Answered: Colby Company makes cases for cell…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 1CE: Ventana Window and Wall Treatments Company provides draperies, shades, and various window...

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Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models:

Activity Cost Pool	Activity Rates
Supporting manufacturing	$	2	per direct labour-hour
Order processing	$	12	per order
Customer service	$	53	per customer

Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months:

	Standard Model	Deluxe Model
Number of cases		120		20
Number of orders		5		2
Direct labour-hours per case		0.25		0.40
Selling price per case	$	32	$	52
Direct materials cost per case	$	9	$	12

The company’s direct labour rate is $12 per hour.

Required:

Using the company’s ABC system, compute the customer margin of Cell City.

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