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 6 30 Units per order 1,000 420 Sales returns: Number of returns 4 5 Total units returned 50 13 140 5 Number of sales calls 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 Sales calls Order processing Deliveries Sales returns Sales salary Required: Cost Driver and Rate $800 per visit 180 per order 410 per order 270 per return and $3 per unit returned 107,000 per month 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.
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 6 30 Units per order 1,000 420 Sales returns: Number of returns 4 5 Total units returned 50 13 140 5 Number of sales calls 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 Sales calls Order processing Deliveries Sales returns Sales salary Required: Cost Driver and Rate $800 per visit 180 per order 410 per order 270 per return and $3 per unit returned 107,000 per month 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.
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 1P
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