9. Schneider Electric manufactures power distributionequipment for commercial customers, such as hospitals andmanufacturers. Activity-based costing was used todetermine customer profitability. Customer serviceactivities were assigned to individual customers, using thefollowing assumed customer service activities, activitybase, and activity rate:Customer Service ActivityBid preparationShipmentSupport standard itemsSupport nonstandard items Number of nonstandard items ordered $150 per nonstandard itemActivity BaseNumber of bid requestsNumber of shipmentsActivity Rate$400 per request$80 per shipment$25 per standard itemNumber of standard items orderedAssume that the company had the following gross profitinformation for three representative customers:Income Statement Item Customer 1 Customer 2 Customer 3Revenue$120,000$200,000 $160,000Cost of goods soldGross profit76,800110,00083,20043,20090,00076,800Gross profit as a % of sales36%45%48%The administrative records indicated that the activity-baseusage quantities for each customer were as follows:Activity BaseNumber of bid requestsCustomer 1 Customer 2 Customer 3183451Number of shipments306048Number of standard items ordered153050Number of nonstandard items ordered57080a. Prepare a customer profitability report dated for theyear ended December 31, 2020, showingi. the income from operations after customer serviceactivities.ii. the gross profit as a percent of sales.iii. the income from operations after customerservice activities as a percent of sales. Prepare thereport with a column for each customer. Roundpercentages to the nearest whole percent.b. Interpret the report in part (a). How well or poorly isthe company doing and why?

Customer profitability analysis is done by the management to measure the profits earned by the…

9. 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 Bid preparation Shipment Support standard items Support nonstandard items Number of nonstandard items ordered $150 per nonstandard item Activity Base Number of bid requests Number of shipments Activity Rate $400 per request $80 per shipment $25 per standard item Number of standard items ordered Assume that the company had the following gross profit information for three representative customers: Income Statement Item Customer 1 Customer 2 Customer 3 $200,000 110,000 Revenue S120,000 $160,000 Cost of goods sold Gross profit Gross profit as a % of sales 76,800 83,200 43,200 90,000 76,800 36% 45% 48% The administrative records indicated that the activity-base usage quantities for each customer were as follows: Activity Base Number of bid requests Number of shipments Customer 1 Customer 2 Customer 3 18 34 51 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, 2020, showing i. the income from operations after customer service activities. ii. the gross profit as a percent of sales. iii. 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. b. Interpret the report in part (a). How well or poorly is the company doing and why?

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