LO 1, 2, 3, 5, 6 6-27 Customer profitability analysis, original activity-based costing Kronecker Company, a growing mail-order clothing and accessory company, is concerned about its growing MSDA expenses. It therefore examined its customer ordering patterns for the past year and identified four different types of customers, as illustrated in the following table. Kronecker sends catalogs and flyers to all its customers several times a year. Orders are taken by mail or over the phone. Kronecker maintains a toll-free number for customers to use when placing orders over the phone. Kronecker prides itself on the personal attention it provides shoppers who order over the phone. All purchases are paid for by check or credit card. Kronecker has a very generous return policy if customers are not satisfied with the merchandise received. Customers must pay return shipping charges, but their purchase price is then fully refunded. CustOMEn TYre 1 CusTOMEx TYr 2 CUNTOMER TYP 3 CUSIOMER TYP 4 Initial sales S1,000 51,000 $2,500 $3,000 Number of items returned 24 Dollar value of items returned S200 S500 $1,500 Number of orders per year 12 Number of phone onders per year Time spent on phone placing orders Number of overmight deliveries 12 0.25 hour 1 hour 12 Number of regular deliveries Chapter 6 Measuring and Managing Customer Relationships 245 are set so that cost of goods sold is on average about 75% of the sales price. Customers pay actual shipping charges, but extra processing is required for overnight deliveries. Kronecker has developed the following activity cost driver rates for its support costs: ACTIVITY CoT DHIVIN RATE $5 per order S80 per hour $5 per item retumed $4 per request $50 per year ACTIVITY Process mail orders Process phone orders Process retums Process overnight delivery requests Maintain customer relations (send catalogs and respond to customer comments or complaints) Required (a) Using activity-based costing, determine the yearly profit associated with each of the four customers described. (b) Comment on which customers are most profitable and why. (c) What advice do you have for Kronecker regarding managing customer relationships with the different types of customers represented?

Performance metrics Apples & Oranges Inc. is trying to become more efficient in shipping goods. It is experimenting with two new shipping procedure initiatives aimed at achieving this strategic objective. The company has provided the following data regarding the two procedures after one month of implementation: Shipping Procedure A Shipping Procedure B 72 17.3 7.7 Number of shipping errors Hours from ordered to shipped - Shipping time (hours from shipped to delivered) Pounds of goods shipped Number of shipments a. Compute the following performance metrics for each program: (1) Average number of shipping errors per shipment, rounded to two decimal places. 720,000 200 Procedure A: error per shipment Procedure B: error per shipment (2) Hours from ordered to delivered, rounded to one decimal place. hours from ordered to delivered hours from ordered to delivered Procedure A: Procedure B: (3) Average pounds of goods per shipment. Procedure A: lbs. of goods per shipment Procedure B: lbs. of…

Question 1: Service Costing & ABC Part AAfrican Adventure Ltd offers a series of holiday packages aimed at families, seniors, and corporate groups. The financial controller is preparing for the annual board meeting and is concerned about the loss the business sustained in the past year. He has examined the profits for each of the three departments of the business and it seems that the corporate department is the source of the problem.The financial controller looked at the three packages offered by the corporate department to establish which are profitable or not profitable. The sales and direct cost of each package for the last year are as follows:South Africa Egypt NamibiaNumber of packages sold 10 20 10Number of people per package 5 6 8Revenue per person $18,000 $12,000 $14,000Direct cost per package: Tour leader $5,000 $12,000 $9,000 Tour assistant $2,000 $3,000 $6,000 Air travel $28,000 $30,000 $32,00 Accommodation $15,000 $26,000 $24,000 Equipment hires $4,000 0 $9,000 Meals…

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Differential Analysis Report for Sales Promotion Proposal Rocket Shoe Company is planning a one-month campaiqn for August to promote sales of one of its two shoe products. A total of $176,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select f the campaign. Cross-Trainer Running Shoe Shoe Unit selling price $59 $65 Unit production costs: Direct materials $ (10) $(14) Direct labor (4) (5) Variable factory overhead (2) (4) Fixed factory overhead (6) (6) Total unit production costs $(22) $(29) Unit variable selling expenses (18) (17) Unit fixed selling expenses (10) (7) Total unit costs $(50) $(53) Operating income per unit $ 9 $ 12 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 28,000 additional units of cross-trainer shoes or 23,000 additional units of running shoes…

Required information Problem 5-68 (Static) Cost Estimation: Simple and Multiple Regression Using a Spreadsheet (Appendix A) (LO 5-4, 5, 6, 9) [The following information applies to the questions displayed below.] Davis Stores sells clothing in 15 stores located around the southwestern United States. The managers at Davis are considering expanding by opening new stores and are interested in estimating costs in potential new locations. They believe that costs are driven in large part by store volume measured by revenue. During a discussion, one of the managers suggests that number of employees might be better at explaining cost than store revenues. As a result of that suggestion, managers collected the following information from last year's operations (revenues and costs in thousands of dollars): Costs Employees 101$ 4,214 102 2,894 103 5, 181 104 3,998 105 3,676 106 107 108 109 110 2,959 111 4,179 112 113 Store 114 115 3, 319 5, 029 2,374 4, 688 3, 200 2,556 4, 655 2,986 39$ 29 47 38 33…

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