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% |
|
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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