Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 14, Problem 14.30P
Customer profitability. Bracelet Delights is a new company that manufactures custom jewelry. Bracelet Delights currently has six customers referenced by customer number: 01, 02, 03, 04, 05, and 06. Besides the costs of making the jewelry, the company has the following activities:
- 1. Customer orders. The salespeople, designers, and jewelry makers spend time with the customer. The cost-driver rate is $42 per hour spent with a customer.
- 2. Customer fittings. Before the jewelry piece is completed, the customer may come in to make sure it looks right and fits properly. Cost-driver rate is $30 per hour.
- 3. Rush orders. Some customers want their jewelry quickly. The cost-diver rate is $90 per rush order.
- 4. Number of customer return visits. Customers may return jewelry up to 30 days after the pickup of the jewelry to have something refitted or repaired at no charge. The cost-driver rate is $40 per return visit.
Information about the six customers follows. Some customers purchased multiple items. The cost of the jewelry is 60% of the selling price.
- 1. Calculate the customer-level operating income for each customer. Rank the customers in order of most to least profitable and prepare a customer-profitability analysis, as in Figures 14-3 and 14-4.
Required
- 2. Are any customers unprofitable? What is causing this? What should Bracelet Delights do about these customers?
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Cal’s Sporting Goods has three product lines and has decided to apply ABC analysis to these three product lines: Running, Golfing and Kayaking. He identifies four activities and their activity cost rates as follows:
Ordering
$95 per purchase order
Delivery and receipt of merchandise
$76 per delivery
Shelf stocking
$19 per hour
Customer support and assistance
$0.15 per item sold.
The revenues, cost of goods sold and activity usage are listed below:
Running
Golfing
Kayaking
Financial Data
Revenues
$60,000
$66,500
$50,500
Cost of goods sold
$41,000
$51,000
$32,000
Store support costs (overhead)
Activity Area Usage
Ordering (purchase orders
44
24
14
Delivery (deliveries)
120
60
36
Shelf stocking (hours)
170
150
20
Customer support (items sold)
15,400
20,200
7,960
Under the simple costing system. Cal’s Sporting Goods…
The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry Love, the firm’s new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Listed below are activity and cost information relating to two of Chocolate Baker’s major products.
Muffins
Cheesecake
Revenue
$53,000
$46,000
Cost of goods sold
26,000
21,000
Delivery activity:
Number of deliveries
150
85
Average length of delivery
10 minutes
15 minutes
Cost per hour for delivery
$20.00
$20.00
Using activity-based costing, which one of the following statements is correct?
A. The cheesecakes are $75 more profitable.
B. The muffins have a higher profitability as a percentage of sales and therefore are more advantageous.
C. The muffins are $2,000 more…
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard
model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost
pools and activity rates for these models:
Activity Rates
Activity Cost Pool
Supporting manufacturing
$2 per direct labour-hour
$27 per order
Order processing
Customer service.
$68 per customer
Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over
the last 12 months:
Standard
Model
Deluxe
Model
95
Number of cases
270
Number of orders
Direct labour-hours per case.
5
0.25
47
2
0.40
67
Selling price per case
$
$
$ 27
Direct materials cost per case
$ 24
The company's direct labour rate is $28 per hour.
Required:
Using the company's ABC system, compute the customer margin of Cell City.
Customer margin
Chapter 14 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 14 - Prob. 14.1QCh. 14 - Why is customer-profitability analysis an...Ch. 14 - Prob. 14.3QCh. 14 - A customer-profitability profile highlights those...Ch. 14 - Give examples of three different levels of costs...Ch. 14 - What information does the whale curve provide?Ch. 14 - A company should not allocate all of its corporate...Ch. 14 - What criteria might managers use to guide...Ch. 14 - Once a company allocates corporate costs to...Ch. 14 - A company should not allocate costs that are fixed...
Ch. 14 - How should a company decide on the number of cost...Ch. 14 - Show how managers can gain insight into the causes...Ch. 14 - How can the concept of a composite unit be used to...Ch. 14 - Explain why a favorable sales-quantity variance...Ch. 14 - How can the sales-quantity variance be decomposed...Ch. 14 - Flexible-budget variance, sales-quantity,...Ch. 14 - Sales-volume, sales-mix, and sales-quantity...Ch. 14 - Cost allocation in hospitals, alternative...Ch. 14 - Customer profitability, customer-cost hierarchy....Ch. 14 - Customer profitability, service company. Instant...Ch. 14 - Customer profitability, distribution. Best Drugs...Ch. 14 - Cost allocation and decision making. Reidland...Ch. 14 - Cost allocation to divisions. Rembrandt Hotel ...Ch. 14 - Cost allocation to divisions. Bergen Corporation...Ch. 14 - Prob. 14.25ECh. 14 - Variance analysis, working backward. The Hiro...Ch. 14 - Variance analysis, multiple products. Emcee Inc....Ch. 14 - Market-share and market-size variances...Ch. 14 - Click here to open your MyFinanceLab Study Plan...Ch. 14 - Customer profitability. Bracelet Delights is a new...Ch. 14 - Customer profitability, distribution. Green Paper...Ch. 14 - Customer profitability in a manufacturing firm....Ch. 14 - Customer-cost hierarchy, customer profitability....Ch. 14 - Allocation of corporate costs to divisions. Cathy...Ch. 14 - Cost allocation to divisions. Forber Bakery makes...Ch. 14 - Prob. 14.36PCh. 14 - Cost-hierarchy income statement and allocation of...Ch. 14 - Variance analysis, sales-mix and sales-quantity...Ch. 14 - Market-share and market-size variances...Ch. 14 - Variance analysis, multiple products. The Robins...Ch. 14 - Customer profitability and ethics. KC Corporation...
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