Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bid requests $420 per request Shipment Number of shipments $90 per shipment Support standard items Number of standard items ordered $30 per std. item Support nonstandard items Number of nonstandard items ordered $180 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $130,000 $210,000 $180,000 Cost of goods sold (81,900) (113,400) (90,000) Gross profit $48,100 $96,600 $90,000 Gross profit as a percent of sales 37% 46% 50% The administrative records indicated that the activity-base usage quantities for each customer were as follows: Activity Base Customer 1 Customer 2 Customer 3 Number of bid requests 15 40 60 Number of shipments 25 55 50 Number of standard items ordered 20 35 52 Number of nonstandard items ordered 6 65 85 a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the operating income after customer service activities, (2) the gross profit as a percent of sales, and (3) the operating income after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate:

Customer Service Activity	Activity Base	Activity Rate
Bid preparation	Number of bid requests	$420 per request
Shipment	Number of shipments	$90 per shipment
Support standard items	Number of standard items ordered	$30 per std. item
Support nonstandard items	Number of nonstandard items ordered	$180 per nonstd. item

Assume that the company had the following gross profit information for three representative customers:

	Customer 1		Customer 2	Customer 3
Revenues		$130,000		$210,000	$180,000
Cost of goods sold		(81,900)		(113,400)	(90,000)
Gross profit		$48,100		$96,600	$90,000
Gross profit as a percent of sales		37%		46%	50%

The administrative records indicated that the activity-base usage quantities for each customer were as follows:

Activity Base	Customer 1	Customer 2	Customer 3
Number of bid requests	15	40	60
Number of shipments	25	55	50
Number of standard items ordered	20	35	52
Number of nonstandard items ordered	6	65	85

a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the operating income after customer service activities, (2) the gross profit as a percent of sales, and (3) the operating income after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent.

Revenues
Cost of goods sold
Gross profit
Customer service activities:
Bid preparation
Customer Profitability Report
For the Year Ended December 31, 20Y8
Customer 1
Shipment
Support standard items
Support nonstandard items
Total customer service activities
Operating income after customer service activities.
Gross profit as a percent of sales
Operating income after customer service activities as a percent of sales
b. Interpret the report in part (a).
The gross profit as a percent of sales indicated that
activity costs associated with customer service activities,
2. The reason is because
$
nonstandard products that required specialized bid requests. In addition,
rather than a few large shipments.
$
$
$
%
%
Customer 2
bod
%
%
liboo
Customer 3
%
%
was the least profitable, while
became the least profitable, while
consumed much more customer service activities than did the other customers. Apparently,
required more shipments, indicating smaller shipments to a customer's location,
was the most profitable. After deducting the
became nearly as profitable as Customer
ordered

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