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Ramirez Corp. has two customers, C1 and C2. Ramirez Corp currently allocates indirect costs to customers at a rate of 5% of customer revenue. Data for C1 and C2 are as follows: C1 $20.00 50.000 $15.00 112 105 77 40 C2 $20.00 12,000 $15.00 Selling Price per Unit Units Sold Manufacturing Cost per unit Number of Purchase Orders Number of deliveries Number of Inspection. Customer Visits A. Using the current costing system to allocate support costs, calculate Operating Income for customers C1 and C2. 27 68 50 35 Ramirez Corp Management Accountant has gathered the following ABC rate information: ABC Cost Rate $40 per purchase order Number of purchase orders Number of deliveries Number of inspections Number of customer visits b. Calculate the total support cost allocated to C1 & C2 using the Activity Based Costing (ABC) system. c. Comparing the indirect cost allocated in part a. to the indirect cost allocated in part b. discuss an important strategic implication (not operational-don't discuss ABC activity usage) of your analysis. $85 per delivery $200 per expedited delivery $400 per customer visit

Ramirez Corp. has two customers, C1 and C2. Ramirez Corp currently allocates indirect costs to customers at a rate of 5% of customer revenue. Data for C1 and C2 are as follows: C1 $20.00 50.000 $15.00 112 105 77 40 C2 $20.00 12,000 $15.00 Selling Price per Unit Units Sold Manufacturing Cost per unit Number of Purchase Orders Number of deliveries Number of Inspection. Customer Visits A. Using the current costing system to allocate support costs, calculate Operating Income for customers C1 and C2. 27 68 50 35 Ramirez Corp Management Accountant has gathered the following ABC rate information: ABC Cost Rate $40 per purchase order Number of purchase orders Number of deliveries Number of inspections Number of customer visits b. Calculate the total support cost allocated to C1 & C2 using the Activity Based Costing (ABC) system. c. Comparing the indirect cost allocated in part a. to the indirect cost allocated in part b. discuss an important strategic implication (not operational-don't discuss ABC activity usage) of your analysis. $85 per delivery $200 per expedited delivery $400 per customer visit

FINANCIAL ACCOUNTING
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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**Ramirez Corp. Customer Cost Allocation Analysis** **Overview:** Ramirez Corp. has two customers, C1 and C2, to whom indirect costs are allocated at a rate of 5% of customer revenue. Below is the data provided for each customer: | Characteristics | C1 | C2 | |---------------------------------|----------|----------| | Selling Price per Unit | $20.00 | $20.00 | | Units Sold | 50,000 | 12,000 | | Manufacturing Cost per Unit | $15.00 | $15.00 | | Number of Purchase Orders | 112 | 27 | | Number of Deliveries | 105 | 68 | | Number of Inspection | 77 | 50 | | Customer Visits | 40 | 35 | **Instructions:** A. **Operating Income Calculation:** - Use the current costing system to allocate support costs and calculate the operating income for customers C1 and C2. B. **Activity Based Costing (ABC) System:** - Ramirez Corp.’s Management Accountant provides the following ABC rate information: | Activity | ABC Cost Rate | |--------------------------------|-----------------------| | Number of Purchase Orders | $40 per purchase order| | Number of Deliveries | $85 per delivery | | Number of Inspections | $200 per inspection | | Number of Customer Visits | $400 per customer visit| - Calculate the total support cost allocated to C1 & C2 using the ABC system. C. **Strategic Implication:** - Compare the indirect cost allocated in part A with the cost allocated in part B. Discuss an important strategic implication of your analysis beyond operational aspects.
Transcribed Image Text:**Ramirez Corp. Customer Cost Allocation Analysis** **Overview:** Ramirez Corp. has two customers, C1 and C2, to whom indirect costs are allocated at a rate of 5% of customer revenue. Below is the data provided for each customer: | Characteristics | C1 | C2 | |---------------------------------|----------|----------| | Selling Price per Unit | $20.00 | $20.00 | | Units Sold | 50,000 | 12,000 | | Manufacturing Cost per Unit | $15.00 | $15.00 | | Number of Purchase Orders | 112 | 27 | | Number of Deliveries | 105 | 68 | | Number of Inspection | 77 | 50 | | Customer Visits | 40 | 35 | **Instructions:** A. **Operating Income Calculation:** - Use the current costing system to allocate support costs and calculate the operating income for customers C1 and C2. B. **Activity Based Costing (ABC) System:** - Ramirez Corp.’s Management Accountant provides the following ABC rate information: | Activity | ABC Cost Rate | |--------------------------------|-----------------------| | Number of Purchase Orders | $40 per purchase order| | Number of Deliveries | $85 per delivery | | Number of Inspections | $200 per inspection | | Number of Customer Visits | $400 per customer visit| - Calculate the total support cost allocated to C1 & C2 using the ABC system. C. **Strategic Implication:** - Compare the indirect cost allocated in part A with the cost allocated in part B. Discuss an important strategic implication of your analysis beyond operational aspects.
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