2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare customer profitability analysis.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
![2. Management felt that because the data revealed some customers require a disproportionate share of sales and
support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a
customer profitability analysis.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa92125e1-6c9a-413f-8430-8fbeeff84ac1%2Fe2d0fcd1-dd51-4e13-b65a-2b78cd986695%2Ft49kpkg_processed.jpeg&w=3840&q=75)
![Ellie Mosk, CEO of X-Space Industries, decided to expand the company's product offering beyond the core model
rocket business. After investigation, she decided to set up a separate division to design and manufacture products
for the drone market. Several companies were interested in having X-Space develop these drones, and financial
results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and
the customer sales and support costs were $1 million. However, there is a growing concern that some customers
require a disproportionate share of the sales and support resources, and the true profitability of the customers is
unknown. Data were collected to support an analysis of customer profitability:
Activity
Cost Driver
Total Cost
$ 479,000
267,000
Sales visits
Sales visit days
Product modifications
Number of modifications
Phone calls
Number of minutes
92,700
169,000
$ 1,007,700
E-mail/electronic communications
Number of communications
Visit
Phone
Electronic
Customer
Revenue
Gross Profit
Days
Modifications
Minutes
Communications
$ 393,000
493,000
593,000
1,070,000
1,430,000
$ 143,000
193,000
223,000
413,000
583,000
1,100
1,190
1,440
1,790
2,190
А
15
15
625
В
25
15
875
C
40
40
1,070
2,070
90
60
100
70
2,320
Totals
$3,979,000
$1,555,000
270
200
7,710
6,960](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa92125e1-6c9a-413f-8430-8fbeeff84ac1%2Fe2d0fcd1-dd51-4e13-b65a-2b78cd986695%2Fcrnehcw_processed.jpeg&w=3840&q=75)
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