Customer profitability and ethics. KC Corporation manufactures an air-freshening device called GoodAir, which it sells to six merchandising firms. The list price of a GoodAir is $30, and the full manufactur- ing costs are $18. Salespeople receive a commission on sales, but the commission is based on number of orders taken, not on sales revenue generated or number of units sold. Salespeople receive a commission of $10 per order (in addition to regular salary). KC Corporation makes products based on anticipated demand. KC carries an inventory of GoodAir, so rush orders do not result in any extra manufacturing costs over and above the $18 per unit KC ships finished product to the customer at no additional charge for either regular or expedited delivery. KC incurs signifi- cantly higher costs for expedited deliveries than for regular deliveries. Customers occasionally return ship- ments to KC, and the company subtracts these returns from gross revenue. The customers are not charged a restocking fee for returns. Budgeted (expected) customer-level cost driver rates are: $15 per order S1 per unit Order taking (excluding sales commission) Product handling Delivery Expedited (rush) delivery Restocking $1.20 per mile driven S175 per shipment $50 per returned shipment $125 per customer Visits to customers Because salespeople are paid $10 per order, they often break up large orders into multiple smaller orders. This practice reduces the actual order-taking cost by $7 per smaller order (from $15 per order to $8 per order) because the smaller orders are all written at the same time. This lower cost rate is not included in budgeted rates because salespeople create smaller orders without telling management or the accounting department. All other actual costs are the same as budgeted costs. Information about KC's clients follows: AC DC MC JC RC BC Total number of units purchased 225 520 295 110 390 1,050 Number of actual orders 20 4 18 Number of written orders 10 20* 12 24 36 Total number of miles driven to 360 580 350 220 790 850 deliver all products Total number of units returned 15 40 35 40 Number of returned shipments Number of expedited deliveries 3 4 * Because DC places 20 separate orders, its order costs are $15 per order. All other orders are multiple smaller orders and so have actual order costs of $8 each.