Activity-Based Costing and Customer Profitability 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 std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $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 percent 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 14 38 55 Number of shipments 30 60 48 Number of standard items ordered 15 30 50 Number of nonstandard items ordered 5 70 80 a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) 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. Enter all amounts as positive numbers.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Activity-Based Costing and Customer Profitability
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 std. item |
| Support nonstandard items | Number of nonstandard items ordered | $150 per nonstd. item |
Assume that the company had the following gross profit information for three representative customers:
| Customer 1 | Customer 2 | Customer 3 | ||||||
| Revenues | $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 percent 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 | 14 | 38 | 55 |
| Number of shipments | 30 | 60 | 48 |
| Number of standard items ordered | 15 | 30 | 50 |
| Number of nonstandard items ordered | 5 | 70 | 80 |
a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) 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. Enter all amounts as positive numbers.
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