Reference no: EM132452944
Assignment -
Part A - AquaDrench CPA analysis (based on sales)
AquoDrench manufactures water pistols for sale in leading toy retailers by far their most popular model is the 'Amphitrite'. The product features of this model include a 10 litre water storage capacity (this is strapped to the user's back) and an automatic rapid fire option for pure drenching power. AquaDrench also produces a second model, the 'Poseidon', which is reputed to be the longest shooting water pistol on the market. The price (wholesales price to the toy stores] and cost of goods sold per unit for each of these products are as follows"
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Amphitrite
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Poseidon
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Price per unit
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$100
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$50
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Cost of goods sold per unit
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60
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40
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Gross profit per unit
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$40
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$10
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In addition, the company incurs customer-related selling & general admin. (SG&A) expenses of $450,000. The company wishes to assign these costs to its three retail customers, Tru Kids, Toyworld. and Kidstuffs. The annual volumes to these customers (in units) are:
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Retailer
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Amphitrite Sales Volume
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Poseidon Sales Volume
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Tru Kids
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9,500
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5,000
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Toyworld
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10,000
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7,000
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Kidstuffs
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4,500
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4,500
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Required - Prepare a report showing the relative profitability of each customer, allocating customer-related expenses based on sales dollar. Compare the relative contribution of each customer to gross profit before and after the allocation of customer-related expenses (as a percentage of the total amount). How would you rank these customers based on this report?
Part B - AquaDrench CPA analysis {using activity-based-information)
Further analysis has revealed that the customer-related expenses ($450,000) are related to three major activities: customer service, sales order processing (the retailers manually order stock and when they require it), and advertising support. The advertising support is in the form of advertisement that are places by AquaDrench to support the retailer's further sales of AquaDrench products to customers. The full-time equivalent (FTE) and activity drivers associated with these activities are:
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FTE
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Activity Driver
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Customer service
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50
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No. of service requests
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Sales order processing
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40
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No. of Sales Orders
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Advertising support
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10
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No. of Ads Placed
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Total
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100
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Toyworld require extensive support in the form of sales order processing 9 orders are received from each individual store rather than from central point of contact) service, and advertising support, as can be seen from the following activity information:
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Tru Kids
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Toyworld
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Kidstuffs
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Total
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No. of service requests
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10
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55
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185
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250
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No. of Sales Orders
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12
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48
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90
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150
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No. of Ads Placed
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20
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50
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130
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200
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Required -
a. Prepare a customer profitability report using activity-based information.
b. How does your assessment of profitability differ from the previous report?
c. If the relative profitability of the three customer has changes, why is that the case?
d. What recommendations would you make regarding the management of each of these three customers?
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Assignment - AquaDrench CPA analysis based on sales
: Part A - AquaDrench CPA analysis (based on sales). Prepare a report showing the relative profitability of each customer, allocating customer-related expenses
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