Colleen Company has gathered the following data pertaining to activities it performed for two of its major customers. Jerry, Incorporated Kate Company Number of orders 4 50 Units per order 3,000 160 Sales returns: Number of returns 2 5 Total units returned 40 120 Number of sales calls 14 3 Colleen sells its products at $280 per unit. The firm’s gross margin ratio is 25%. 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:
Colleen Company has gathered the following data pertaining to activities it performed for two of its major customers.
| Jerry, Incorporated | Kate Company | |
|---|---|---|
| Number of orders | 4 | 50 |
| Units per order | 3,000 | 160 |
| Sales returns: | ||
| Number of returns | 2 | 5 |
| Total units returned | 40 | 120 |
| Number of sales calls | 14 | 3 |
Colleen sells its products at $280 per unit. The firm’s gross margin ratio is 25%. Both Jerry and Kate pay their accounts promptly and no
| Activity | Cost Driver and Rate | |
|---|---|---|
| Sales calls | $600 | per visit |
| Order processing | 240 | per order |
| Deliveries | 480 | per order |
| Sales returns | 270 | per return and $6 per unit returned |
| Sales salary | 94,000 | 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, Incorporated and Kate Company.
2. Compare the profitability of these two customers.
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