gure Four is a distributor of pharmaceutical products. Its activity-based costing system has five activity areas: Activity Area Cost Driver and Rate Order processing $40 per order Line item ordering $3 per line item Store deliveries $50 per store delivery Carton deliveries $1 per carton Shelf-stocking $16 per stocking-hour Rick Flair, the controller of Figure Four, wants to use this activity-based costing system to examine individual customer profitability within each distribution market. Two customers are used to exemplify the insights available with the activity-based costing approach. Data pertaining to these two customers in August are as follows: Charleston Pharmacy Chapel Hill Pharmacy Total orders 12 10 Average line items per order 10 18 Total store deliveries 6 10 Average cartons shipped per store delivery 24 20 Average hours of shelf-stocking per store delivery 0 0.5 Average revenue per delivery $2,400 $1,800 Average cost of goods sold per delivery $2,100 $1,650 Use the activity-based costing information to compute the operating income and the profit margin of each customer in August
Figure Four is a distributor of pharmaceutical products. Its activity-based costing system has five activity areas:
|
Activity Area |
Cost Driver and Rate |
|
Order processing |
$40 per order |
|
Line item ordering |
$3 per line item |
|
Store deliveries |
$50 per store delivery |
|
Carton deliveries |
$1 per carton |
|
Shelf-stocking |
$16 per stocking-hour |
Rick Flair, the controller of Figure Four, wants to use this activity-based costing system to examine individual customer profitability within each distribution market. Two customers are used to exemplify the insights available with the activity-based costing approach. Data pertaining to these two customers in August are as follows:
|
|
Charleston Pharmacy |
Chapel Hill Pharmacy |
|
Total orders |
12 |
10 |
|
Average line items per order |
10 |
18 |
|
Total store deliveries |
6 |
10 |
|
Average cartons shipped per store delivery |
24 |
20 |
|
Average hours of shelf-stocking per store delivery |
0 |
0.5 |
|
Average revenue per delivery |
$2,400 |
$1,800 |
|
Average cost of goods sold per delivery |
$2,100 |
$1,650 |
Use the activity-based costing information to compute the operating income and the profit margin of each customer in August.
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