Schneider 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 $400 per request Shipment Number of shipments $80 per shipment Support standard items Number of standard items ordered $25 per standard item Support nonstandard items Number of nonstandard items ordered $150 per nonstandard item Assume that the company had the following gross profit information for three representative customers: Income Statement Item Customer 1 Customer 2 Customer 3 Revenue $120,000 $200,000 $160,000 Cost of goods sold 76,800 110,000 83,200 Gross profit 43,200 90,000 76,800 Gross profit as a % of sales 36% 45% 48% 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 18 34 51 Number of shipments 30 60 48 Number of standard items ordered 15 30 50 Number of nonstandard items ordered 5 70 80 Prepare a customer profitability report dated for the year ended December 31, 2020, showing the income from operations after customer service activities. the gross profit as a percent of sales. the income from operations 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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Schneider 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	$400 per request
Shipment	Number of shipments	$80 per shipment
Support standard items	Number of standard items ordered	$25 per standard item
Support nonstandard items	Number of nonstandard items ordered	$150 per nonstandard item

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

Income Statement Item	Customer 1	Customer 2	Customer 3
Revenue	$120,000	$200,000	$160,000
Cost of goods sold	76,800	110,000	83,200
Gross profit	43,200	90,000	76,800
Gross profit as a % of sales	36%	45%	48%

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	18	34	51
Number of shipments	30	60	48
Number of standard items ordered	15	30	50
Number of nonstandard items ordered	5	70	80

Prepare a customer profitability report dated for the year ended December 31, 2020, showing

the income from operations after customer service activities.
the gross profit as a percent of sales.
the income from operations 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.

Expert Solution

Step 1

Schneider Electric
Customer Profitability Report
For the Year Ended December 31, 20Y8
	Customer 1	Customer 2	Customer 3
Revenues	$ 1,20,000	$ 2,00,000	$ 1,60,000
Cost of goods sold	$ 76,800	$ 1,10,000	$ 83,200
Gross profit	$ 43,200	$ 90,000	$ 76,800
Customer service activities:
Bid preparation ($400*Number of bid requests)	$ 5,600	$ 15,200	$ 22,000
Shipment ($80* Number of shipments)	$ 2,400	$ 4,800	$ 3,840
Support standard items ($25*number of standard items ordered)	$ 375	$ 750	$ 1,250
Support nonstandard items ($150*number of nonstandard items ordered)	$ 750	$ 10,500	$ 12,000
Total customer service activities	$ 9,125	$ 31,250	$ 39,090
Income from operations after customer service activities	$ 34,075	$ 58,750	$ 37,710

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