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Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Sales revenue Customer-related activity costs Calculate the profitability of each customer type. (Because sales revenues for each customer type are equal, the profitability will be the same for each customer type.) Frequent X 2. Assign the customer-related activity costs to each customer type using activity rates. Enter the appropriate activity rates below. Processing sales orders per order per scheduling hour Scheduling production Setting up equipment Inspecting batches Calculate the profitability of each customer category. Customer Profitability Infrequent X per setup per inspection

Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Sales revenue Customer-related activity costs Calculate the profitability of each customer type. (Because sales revenues for each customer type are equal, the profitability will be the same for each customer type.) Frequent X 2. Assign the customer-related activity costs to each customer type using activity rates. Enter the appropriate activity rates below. Processing sales orders per order per scheduling hour Scheduling production Setting up equipment Inspecting batches Calculate the profitability of each customer category. Customer Profitability Infrequent X per setup per inspection

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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External Linkages, Customer Costing, Customer Profitability Emery Company sells small machine parts to heavy equipment manufacturers for an average price of $1.05 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is required. Scheduling is also needed to coordinate the many different orders that come in and place demands on the plant's manufacturing resources. Emery also inspects a sample of the products each time a batch is produced to ensure that the customer's specifications have been met. Inspection takes essentially the same time regardless of the type of part being produced. Emery's Cost Accounting Department has provided the following budgeted data for customer-related activities and costs (the amounts expected for the coming year): Frequently Ordering Customer-related activity costs: Processing sales orders Scheduling production Customers Setting up equipment Inspecting batches Total Sales orders Average order size Number of setups Scheduling hours Inspections Average unit cost *This cost does not include the cost of the following "customer-related" activites: 21,000 2,100 26,250 36,750 26,250 $0.56 Less Frequently Ordering Customers 2,100 21,000 5,250 5,250 5,250 $0.56 $2,310,000 1,260,000 3,780,000 5,040,000 $12,390,000
Transcribed Image Text:External Linkages, Customer Costing, Customer Profitability Emery Company sells small machine parts to heavy equipment manufacturers for an average price of $1.05 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is required. Scheduling is also needed to coordinate the many different orders that come in and place demands on the plant's manufacturing resources. Emery also inspects a sample of the products each time a batch is produced to ensure that the customer's specifications have been met. Inspection takes essentially the same time regardless of the type of part being produced. Emery's Cost Accounting Department has provided the following budgeted data for customer-related activities and costs (the amounts expected for the coming year): Frequently Ordering Customer-related activity costs: Processing sales orders Scheduling production Customers Setting up equipment Inspecting batches Total Sales orders Average order size Number of setups Scheduling hours Inspections Average unit cost *This cost does not include the cost of the following "customer-related" activites: 21,000 2,100 26,250 36,750 26,250 $0.56 Less Frequently Ordering Customers 2,100 21,000 5,250 5,250 5,250 $0.56 $2,310,000 1,260,000 3,780,000 5,040,000 $12,390,000
Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Sales revenue Customer-related activity costs Calculate the profitability of each customer type. (Because sales revenues for each customer type are equal, the profitability will be the same for each customer type.) Calculate the profitability of each customer category. Customer Profitability X 2. Assign the customer-related activity costs to each customer type using activity rates. Enter the appropriate activity rates below. Processing sales orders per order per scheduling hour Scheduling production Setting up equipment per setup Inspecting batches per inspection Frequent X Infrequent
Transcribed Image Text:Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Sales revenue Customer-related activity costs Calculate the profitability of each customer type. (Because sales revenues for each customer type are equal, the profitability will be the same for each customer type.) Calculate the profitability of each customer category. Customer Profitability X 2. Assign the customer-related activity costs to each customer type using activity rates. Enter the appropriate activity rates below. Processing sales orders per order per scheduling hour Scheduling production Setting up equipment per setup Inspecting batches per inspection Frequent X Infrequent
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