FINANCIAL+MANAG.ACCT.
9th Edition
ISBN: 9781260728774
Author: Wild
Publisher: RENT MCG
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Stable Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $12 per case and sells to retail customers at a list price of $14.80 per case. Data
pertaining to the five customers are:
E (Click the icon to view the data.)
Stable Paper Delivery's five activities and their cost drivers are as follows:
E (Click the icon to view the activities and cost drivers.)
Read the requirements.
Requirement 1. Compute the customer-level operating income of each of the five retail
Begin by calculating each customer's gross margin. Then calculate the operating incom
minus sign for operating losses.)
Requirements
1
2
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.
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…
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models:
Activity Cost Pool
Activity Rates
Supporting manufacturing
$
2
per direct labour-hour
Order processing
$
12
per order
Customer service
$
53
per customer
Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months:
Standard Model
Deluxe Model
Number of cases
120
20
Number of orders
5
2
Direct labour-hours per case
0.25
0.40
Selling price per case
$
32
$
52
Direct materials cost per case
$
9
$
12
The company’s direct labour rate is $12 per hour.
Required:
Using the company’s ABC system, compute the customer margin…
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard
model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost
pools and activity rates for these models:
Activity Rates
Activity Cost Pool
Supporting manufacturing
$2 per direct labour-hour
$27 per order
Order processing
Customer service.
$68 per customer
Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over
the last 12 months:
Standard
Model
Deluxe
Model
95
Number of cases
270
Number of orders
Direct labour-hours per case.
5
0.25
47
2
0.40
67
Selling price per case
$
$
$ 27
Direct materials cost per case
$ 24
The company's direct labour rate is $28 per hour.
Required:
Using the company's ABC system, compute the customer margin of Cell City.
Customer margin
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