Customer 2 3 4 1,830 31,200 1,950 Cases sold 6,780 44,500 $26 $26 $26 $26 $26 List selling price Actual selling price $26 $25.20 $24.30 $25.80 $23.90 Number of purchase orders 10 18 35 16 35 Number of customer visits 3 5 12 4 12 Number of deliveries 12 28 65 25 35 Miles traveled per delivery 14 6 45 Number of expedited deliveries Activity Cost Driver Rate $90 per purchase order $75 per customer visit $3 per delivery mile traveled $1.20 per case sold $250 per expedited delivery Order taking Customer visits Deliveries Product handling Expedited deliveries

Question

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:

  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 or more of the five customers?
Customer
2
3
4
1,830
31,200
1,950
Cases sold
6,780
44,500
$26
$26
$26
$26
$26
List selling price
Actual selling price
$26
$25.20
$24.30
$25.80
$23.90
Number of purchase orders
10
18
35
16
35
Number of customer visits
3
5
12
4
12
Number of deliveries
12
28
65
25
35
Miles traveled per delivery
14
6
45
Number of expedited deliveries

Image Transcription

Customer 2 3 4 1,830 31,200 1,950 Cases sold 6,780 44,500 $26 $26 $26 $26 $26 List selling price Actual selling price $26 $25.20 $24.30 $25.80 $23.90 Number of purchase orders 10 18 35 16 35 Number of customer visits 3 5 12 4 12 Number of deliveries 12 28 65 25 35 Miles traveled per delivery 14 6 45 Number of expedited deliveries

Activity
Cost Driver Rate
$90 per purchase order
$75 per customer visit
$3 per delivery mile traveled
$1.20 per case sold
$250 per expedited delivery
Order taking
Customer visits
Deliveries
Product handling
Expedited deliveries

Image Transcription

Activity Cost Driver Rate $90 per purchase order $75 per customer visit $3 per delivery mile traveled $1.20 per case sold $250 per expedited delivery Order taking Customer visits Deliveries Product handling Expedited deliveries

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Related Accounting Q&A

Find answers to questions asked by student like you

Q: Balanced scorecard, environmental, and social performance. Gardini Chocolates makes custom-labeled, ...

A: Requirement 1:Identify whether the strategies in 2017 are implemented successfully.No, the strategy ...

Q: Help with the A,B, and C

A: Cost accounting is the branch of accounting that inspects the cost structure of a business. This bra...

Q: What is the purpose of the statement of cash flows? What information does it provide?

A: Click to see the answer

Q: Using IFRS, a change in accounting policy for which a standard does not include specific transitiona...

A: IFRS: International Financial Reporting Standard is abbreviated as IFRS. The IFRS is set up to bring...

Q: Equipment was purchased on January 2, 2017, for $24,000,but no portion of the cost has been charged ...

A: Accounting error: Accounting errors can be defined as omission of the fundamental accounting princip...

Q: Three programmers at Feenix Computer Storage, Inc., write an operating systems control manual for Hi...

A: Click to see the answer

Q: A quasi reorganization is sometimes employed by a firm undergoing financial difficulties, but with f...

A: Quasi ReorganizationQuasi reorganization would be approved by the board of directors and shareholder...

Q: Theory of constraints, throughput margin, and relevant costs. Washington Industries manufactures ele...

A: Relevant Cost: Relevant cost is the avoidable cost which incurred at the time of the decision making...

Q: In 2016, internal auditors discovered that PKE Displays, Inc., had debited an expense account for th...

A: Calculate the annual accumulated depreciation: