Answered: Colleen Company has gathered the…

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter16: Accounting For Accounts Receivable

Section: Chapter Questions

Problem 1CP: Martel Co. has 320,000 in Accounts Receivable on December 31, 20-1, the end of its first year of...

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Colleen Company has gathered the following data pertaining to activities it performed for two of its major customers.

	Jerry, Inc.	Kate Co.
Number of orders		6	30
Units per order		2,000	440
Sales returns:
Number of returns		4	5
Total units returned		60	180
Number of sales calls		11	3

Colleen sells its products at $180 per unit. The firm’s gross margin ratio is 25%. Both Jerry and Kate pay their accounts promptly and no accounts receivable is over 30 days. After using business analytics software to carefully analyze the operating data for the past 30 months, the firm has determined the following activity costs:

Activity	Cost Driver and Rate
Sales calls	$	800	per visit
Order processing		420	per order
Deliveries		400	per order
Sales returns		290	per return and $3 per unit returned
Sales salary		114,000	per month

Required:

1. Using customers as the cost objects, classify the activity costs into cost categories (unit-level, batch-level, etc.) and compute the total cost for Colleen Company to service Jerry, Inc. and Kate Co.

2. Compare the profitability of these two customers.

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