Answered: Colleen Company has gathered the…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Colleen Company has gathered the following data pertaining to activities it performed for two of its major customers.

	Jerry, Inc.	Kate Co.
Number of orders		6	30
Units per order		1,000	420
Sales returns:
Number of returns		4	5
Total units returned		50	140
Number of sales calls		13	5

Colleen sells its products at $290 per unit. The firm’s gross margin ratio is 20%. Both Jerry and Kate pay their accounts promptly and no accounts receivable is over 30 days. After using business analytics software to carefully analyze the operating data for the past 30 months, the firm has determined the following activity costs:

Activity	Cost Driver and Rate
Sales calls	$	800	per visit
Order processing		180	per order
Deliveries		410	per order
Sales returns		270	per return and $3 per unit returned
Sales salary		107,000	per month

Required:

1. Using customers as the cost objects, classify the activity costs into cost categories (unit-level, batch-level, etc.) and compute the total cost for Colleen Company to service Jerry, Inc. and Kate Co.

2. Compare the profitability of these two customers.

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