Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 14, Problem 14.31P
Customer profitability, distribution. Green Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $20 per case and sells to retail customers at a list price of $26 per case. Data pertaining to the five customers are:
Green Paper Delivery’s five activities and their cost drivers are:
| Activity | Cost-Driver Rate |
| Order taking | $90 per purchase order |
| Customer visits | $75 per customer visit |
| Deliveries | $3 per delivery mile traveled |
| Product handling | $1.20 per case sold |
| Expedited deliveries | $250 per expedited delivery |
- 1. Compute the customer-level operating income of each of the five retail customers now being examined (1, 2, 3, 4, and 5). Comment on the results.
Required
- 2. What insights do managers gain by reporting both the list selling price and the actual selling price for each customer?
- 3. What factors should managers consider in deciding whether to drop one or more of the five customers?
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Fresh
Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at
$ 11
per case and sells to retail customers at a list price of
$14.70
per case. Data pertaining to the five customers are:
Customer
1
2
3
4
5
Cases sold
2,050
8,840
61,800
34,100
2,700
List selling price
$14.70
$14.70
$14.70
$14.70
$14.70
Actual selling price
$14.70
$14.50
$12.80
$14.18
$13.20
Number of purchase orders
16
22
39
31
34
Number of customer visits
3
2
7
4
4
Number of deliveries
18
32
69
40
34
Miles traveled per delivery
17
7
10
11
44
Number of expedited deliveries
0
0
0
0
3
pop-up content ends
ctivity
Cost Driver Rate
Order taking
$200 per purchase order
Customer visits
$50 per customer visit
Deliveries
$2 per delivery mile traveled
Product handling
$0.50 per case sold
Expedited deliveries
$310 per expedited…
Bigdog Company distributes pet products. Its ABC system has five activities:
Activity Area
Cost Driver Rate in 2020
1. Order processing
$50 per order
2. Line-item ordering
$5 per line item
3. Store deliveries
$40 per store delivery
4. Carton deliveries
$6 per carton
5. Shelf-stocking
$19 per stocking hour
Rufus McBrain, the controller of Bigdog Company, wants to use this ABC system to examine customer profitability. He focuses on two of his customers to find out the insights he can gain from using this system. Data for these two customers in April 2020 are as follows:
Pet Store Annerley
RSPCA store Springwood
Total orders
13
7
Average line items per order
11
19
Total store deliveries
5
7
Average cartons shipped per store delivery
21
18
Average hours of shelf stocking per store delivery
0.5
0.75
Average revenue per delivery
$2,600
$1,900
Average cost of goods sold per delivery…
Bigdog Company distributes pet products. Its ABC system has five activities:
Activity Area
Cost Driver Rate in 2020
1. Order processing
$50 per order
2. Line-item ordering
$5 per line item
3. Store deliveries
$40 per store delivery
4. Carton deliveries
$6 per carton
5. Shelf-stocking
$19 per stocking hour
Rufus McBrain, the controller of Bigdog Company, wants to use this ABC system to examine customer profitability. He focuses on two of his customers to find out the insights he can gain from using this system. Data for these two customers in April 2020 are as follows:
Pet Store Annerley
RSPCA store Springwood
Total orders
13
7
Average line items per order
11
19
Total store deliveries
5
7
Average cartons shipped per store delivery
21
18
Average hours of shelf stocking per store delivery
0.5
0.75
Average revenue per delivery
$2,600
$1,900
Average cost of goods sold per delivery…
Chapter 14 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 14 - Prob. 14.1QCh. 14 - Why is customer-profitability analysis an...Ch. 14 - Prob. 14.3QCh. 14 - A customer-profitability profile highlights those...Ch. 14 - Give examples of three different levels of costs...Ch. 14 - What information does the whale curve provide?Ch. 14 - A company should not allocate all of its corporate...Ch. 14 - What criteria might managers use to guide...Ch. 14 - Once a company allocates corporate costs to...Ch. 14 - A company should not allocate costs that are fixed...
Ch. 14 - How should a company decide on the number of cost...Ch. 14 - Show how managers can gain insight into the causes...Ch. 14 - How can the concept of a composite unit be used to...Ch. 14 - Explain why a favorable sales-quantity variance...Ch. 14 - How can the sales-quantity variance be decomposed...Ch. 14 - Flexible-budget variance, sales-quantity,...Ch. 14 - Sales-volume, sales-mix, and sales-quantity...Ch. 14 - Cost allocation in hospitals, alternative...Ch. 14 - Customer profitability, customer-cost hierarchy....Ch. 14 - Customer profitability, service company. Instant...Ch. 14 - Customer profitability, distribution. Best Drugs...Ch. 14 - Cost allocation and decision making. Reidland...Ch. 14 - Cost allocation to divisions. Rembrandt Hotel ...Ch. 14 - Cost allocation to divisions. Bergen Corporation...Ch. 14 - Prob. 14.25ECh. 14 - Variance analysis, working backward. The Hiro...Ch. 14 - Variance analysis, multiple products. Emcee Inc....Ch. 14 - Market-share and market-size variances...Ch. 14 - Click here to open your MyFinanceLab Study Plan...Ch. 14 - Customer profitability. Bracelet Delights is a new...Ch. 14 - Customer profitability, distribution. Green Paper...Ch. 14 - Customer profitability in a manufacturing firm....Ch. 14 - Customer-cost hierarchy, customer profitability....Ch. 14 - Allocation of corporate costs to divisions. Cathy...Ch. 14 - Cost allocation to divisions. Forber Bakery makes...Ch. 14 - Prob. 14.36PCh. 14 - Cost-hierarchy income statement and allocation of...Ch. 14 - Variance analysis, sales-mix and sales-quantity...Ch. 14 - Market-share and market-size variances...Ch. 14 - Variance analysis, multiple products. The Robins...Ch. 14 - Customer profitability and ethics. KC Corporation...
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