Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Activity Rates Supporting manufacturing $ 2 per direct labour-hour Order processing $ 12 per order Customer service $ 53 per customer Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Standard Model Deluxe Model Number of cases 120 20 Number of orders 5 2 Direct labour-hours per case 0.25 0.40 Selling price per case $ 32 $ 52 Direct materials cost per case $ 9 $ 12 The company’s direct labour rate is $12 per hour. Required: Using the company’s ABC system, compute the customer margin of Cell City.
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Activity Rates Supporting manufacturing $ 2 per direct labour-hour Order processing $ 12 per order Customer service $ 53 per customer Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Standard Model Deluxe Model Number of cases 120 20 Number of orders 5 2 Direct labour-hours per case 0.25 0.40 Selling price per case $ 32 $ 52 Direct materials cost per case $ 9 $ 12 The company’s direct labour rate is $12 per hour. Required: Using the company’s ABC system, compute the customer margin of Cell City.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models:
| Activity Cost Pool | Activity Rates | ||
| Supporting manufacturing | $ | 2 | per direct labour-hour |
| Order processing | $ | 12 | per order |
| Customer service | $ | 53 | per customer |
Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months:
| Standard Model | Deluxe Model | |||||
| Number of cases | 120 | 20 | ||||
| Number of orders | 5 | 2 | ||||
| Direct labour-hours per case | 0.25 | 0.40 | ||||
| Selling price per case | $ | 32 | $ | 52 | ||
| Direct materials cost per case | $ | 9 | $ | 12 | ||
The company’s direct labour rate is $12 per hour.
Required:
Using the company’s ABC system, compute the customer margin of Cell City.
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