Homework Help is Here – Start Your Trial Now!
Business
Accounting
Dropping a customer, activity-based costing, ethics. Justin Anders is the management ac- countant for Carey Restaurant Supply (CRS). Sara Brinkley, the CRS sales manager, and Justin are meeting to discuss the profitability of one of the customers, Donnelly's Pizza. Justin hands Sara the following analysis of Donnelly's activity during the last quarter, taken from CRS's activity-based costing system: Sales $43,680 Cost of goods sold (all variable) 26,180 14,000 Order processing (50 orders processed at $280 per order) Delivery (5,000 miles driven at $0.70 per mile) 3,500 Rush orders (6 rush orders at $154 per rush order) Customer sales visits (6 sales calls at $140 per call) 924 840 Total costs 45,444 Profits $ (1,764) Sara looks at the report and remarks, "I'm glad to see all my hard work is paying off with Donnelly's. Sales have gone up 10% over the previous quarter!" Justin replies, "Increased sales are great, but I'm worried about Donnelly's margin, Sara. We were showing a profit with Donnelly's at the lower sales level, but now we're showing a loss. Gross margin per- centage this quarter was 40%, down five percentage points from the prior quarter. I'm afraid that corporate will push hard to drop them as a customer if things don't turn around." "That's crazy," Sara responds. "A lot of that overhead for things like order processing, deliveries, and sales calls would just be allocated to other customers if we dropped Donnelly's. This report makes it look like we're losing money on Donnelly's when we're not. In any case, I am sure you can do something to make its profitability look closer to what we think it is. No one doubts that Donnelly's is a very good customer."

Dropping a customer, activity-based costing, ethics. Justin Anders is the management ac- countant for Carey Restaurant Supply (CRS). Sara Brinkley, the CRS sales manager, and Justin are meeting to discuss the profitability of one of the customers, Donnelly's Pizza. Justin hands Sara the following analysis of Donnelly's activity during the last quarter, taken from CRS's activity-based costing system: Sales $43,680 Cost of goods sold (all variable) 26,180 14,000 Order processing (50 orders processed at $280 per order) Delivery (5,000 miles driven at $0.70 per mile) 3,500 Rush orders (6 rush orders at $154 per rush order) Customer sales visits (6 sales calls at $140 per call) 924 840 Total costs 45,444 Profits $ (1,764) Sara looks at the report and remarks, "I'm glad to see all my hard work is paying off with Donnelly's. Sales have gone up 10% over the previous quarter!" Justin replies, "Increased sales are great, but I'm worried about Donnelly's margin, Sara. We were showing a profit with Donnelly's at the lower sales level, but now we're showing a loss. Gross margin per- centage this quarter was 40%, down five percentage points from the prior quarter. I'm afraid that corporate will push hard to drop them as a customer if things don't turn around." "That's crazy," Sara responds. "A lot of that overhead for things like order processing, deliveries, and sales calls would just be allocated to other customers if we dropped Donnelly's. This report makes it look like we're losing money on Donnelly's when we're not. In any case, I am sure you can do something to make its profitability look closer to what we think it is. No one doubts that Donnelly's is a very good customer."

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter11: Strategic Cost Management
Section: Chapter Questions
Problem 11E: Assign the customer-related activity costs to each customer type using activity rates. Now calculate...
See similar textbooks
icon
Related questions
Question

Should Justin rework the numbers? How should he respond to Sara’s comments about making Donnelly’s look more profitable?

Dropping a customer, activity-based costing, ethics. Justin Anders is the management ac- countant for Carey Restaurant Supply (CRS). Sara Brinkley, the CRS sales manager, and Justin are meeting to discuss the profitability of one of the customers, Donnelly's Pizza. Justin hands Sara the following analysis of Donnelly's activity during the last quarter, taken from CRS's activity-based costing system: Sales $43,680 Cost of goods sold (all variable) 26,180 14,000 Order processing (50 orders processed at $280 per order) Delivery (5,000 miles driven at $0.70 per mile) 3,500 Rush orders (6 rush orders at $154 per rush order) Customer sales visits (6 sales calls at $140 per call) 924 840 Total costs 45,444 Profits $ (1,764) Sara looks at the report and remarks, "I'm glad to see all my hard work is paying off with Donnelly's. Sales have gone up 10% over the previous quarter!" Justin replies, "Increased sales are great, but I'm worried about Donnelly's margin, Sara. We were showing a profit with Donnelly's at the lower sales level, but now we're showing a loss. Gross margin per- centage this quarter was 40%, down five percentage points from the prior quarter. I'm afraid that corporate will push hard to drop them as a customer if things don't turn around." "That's crazy," Sara responds. "A lot of that overhead for things like order processing, deliveries, and sales calls would just be allocated to other customers if we dropped Donnelly's. This report makes it look like we're losing money on Donnelly's when we're not. In any case, I am sure you can do something to make its profitability look closer to what we think it is. No one doubts that Donnelly's is a very good customer."
Transcribed Image Text:Dropping a customer, activity-based costing, ethics. Justin Anders is the management ac- countant for Carey Restaurant Supply (CRS). Sara Brinkley, the CRS sales manager, and Justin are meeting to discuss the profitability of one of the customers, Donnelly's Pizza. Justin hands Sara the following analysis of Donnelly's activity during the last quarter, taken from CRS's activity-based costing system: Sales $43,680 Cost of goods sold (all variable) 26,180 14,000 Order processing (50 orders processed at $280 per order) Delivery (5,000 miles driven at $0.70 per mile) 3,500 Rush orders (6 rush orders at $154 per rush order) Customer sales visits (6 sales calls at $140 per call) 924 840 Total costs 45,444 Profits $ (1,764) Sara looks at the report and remarks, "I'm glad to see all my hard work is paying off with Donnelly's. Sales have gone up 10% over the previous quarter!" Justin replies, "Increased sales are great, but I'm worried about Donnelly's margin, Sara. We were showing a profit with Donnelly's at the lower sales level, but now we're showing a loss. Gross margin per- centage this quarter was 40%, down five percentage points from the prior quarter. I'm afraid that corporate will push hard to drop them as a customer if things don't turn around." "That's crazy," Sara responds. "A lot of that overhead for things like order processing, deliveries, and sales calls would just be allocated to other customers if we dropped Donnelly's. This report makes it look like we're losing money on Donnelly's when we're not. In any case, I am sure you can do something to make its profitability look closer to what we think it is. No one doubts that Donnelly's is a very good customer."
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Morals and Ethics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Cost Accounting
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS