Activity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item   Assume that the company had the following gross profit information for three representative customers:   Customer 1   Customer 2   Customer 3 Revenues   $120,000     $200,000     $160,000 Cost of goods sold   76,800     110,000     83,200 Gross profit   $43,200     $90,000     $76,800 Gross profit as a percent of sales   36%     45%     48%   The administrative records indicated that the activity-base usage quantities for each customer were as follows: Activity Base Customer 1 Customer 2 Customer 3 Number of bid requests 14 38 55 Number of shipments 30 60 48 Number of standard items ordered 15 30 50 Number of nonstandard items ordered 5 70 80   a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent. Enter all amounts as positive numbers.

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Activity-Based Costing and Customer Profitability

Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate:

Customer Service Activity Activity Base Activity Rate
Bid preparation Number of bid requests $400 per request
Shipment Number of shipments $ 80 per shipment
Support standard items Number of standard items ordered $ 25 per std. item
Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item

 

Assume that the company had the following gross profit information for three representative customers:

  Customer 1   Customer 2   Customer 3
Revenues   $120,000     $200,000     $160,000
Cost of goods sold   76,800     110,000     83,200
Gross profit   $43,200     $90,000     $76,800
Gross profit as a percent of sales   36%     45%     48%

 

The administrative records indicated that the activity-base usage quantities for each customer were as follows:

Activity Base Customer 1 Customer 2 Customer 3
Number of bid requests 14 38 55
Number of shipments 30 60 48
Number of standard items ordered 15 30 50
Number of nonstandard items ordered 5 70 80

 

a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent. Enter all amounts as positive numbers.

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