HORNGREN'S COST ACCT >IA<
16th Edition
ISBN: 9780136675464
Author: Datar
Publisher: PEARSON
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Chapter 14, Problem 14.32P
Customer profitability in a manufacturing firm. Mississippi Manufacturing makes a component called B2040. This component is manufactured only when ordered by a customer, so Mississippi keeps no inventory of B2040. The list price is $112 per unit, but customers who place “large” orders receive a 10% discount on price. The customers are manufacturing firms. Currently, the salespeople decide whether an order is large enough to qualify for the discount. When the product is finished, it is packed in cases of 10. If the component needs to be exchanged or repaired, customers can come back within 14 days for free exchange or repair.
The full cost of manufacturing a unit of B2040 is $95. In addition, Mississippi incurs customer-level costs. Customer-level cost-driver rates are:
| Order taking | $360 per order |
| Product handling | $15 per case |
| Rush-order processing | $560 per rush order |
| Exchange and repair costs | $50 per unit |
Information about Mississippi’s five biggest customers follows:
All customers except E ordered units in the same order size. Customer E’s order quantity varied, so E got a discount part of the time but not all the time.
- 1. Calculate the customer-level operating income for these five customers. Use the format in Figure 14-3. Prepare a customer-profitability analysis by ranking the customers from most to least profitable, as in Figure 14-4.
Required
Required
- 2. Discuss the results of your customer-profitability analysis. Does Mississippi have unprofitable customers? Is there anything Mississippi should do differently with its five customers?
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Customer profitability in a manufacturing firm. Mississippi Manufacturing makes a component called B2040. This component is manufactured only when ordered by a customer, so Mississippi keeps no inventory of B2040. The list price is $112 per unit, but customers who place “large” orders receive a 10% discount on price. The customers are manufacturing firms. Currently, the salespeople decide whether an order is large enough to qualify for the discount. When the product is finished, it is packed in cases of 10. If the component needs to be exchanged or repaired, customers can come back within 14 days for free exchange or repair.
The full cost of manufacturing a unit of B2040 is $95. In addition, Mississippi incurs customer-level costs. Customer-level cost-driver rates are:
Red Rose Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:
Variable costs:
Direct materials
$170
Direct labor
70
Manufacturing support
125
Marketing costs
75
Fixed costs:
Manufacturing support
175
Marketing costs
55
Total costs
670
Markup (40%)
268
Targeted selling price
$938
What is the change in operating profits if the one-time-only special order for 1000 units is accepted for $580 a unit by Red Rose?
$139,330 decrease in operating profits
$140,000 increase in operating profits
$140,000 decrease in operating profits
$139,330 increase in operating profits
Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs are $500 per order and carrying costs are $100 per bike per year, including $40 in the opportunity cost of holding inventory.
Q. Assume that when evaluating the manager, the company excludes the opportunity cost of carrying inventory. If the manager makes the EOQ decision excluding the opportunity cost of carrying inventory, the relevant carrying cost would be $60, not $100. How would this affect the EOQ amount and the actual annual relevant cost of ordering and carrying inventory?
Chapter 14 Solutions
HORNGREN'S COST ACCT >IA<
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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