Determine profitability of customer class using activity

Assignment Help Accounting Basics

Reference no: EM13259761

Carbon Company has two classes of customers designated as C Classand D Class. The C Class customers place small, frequentorders, and the D Class customers tend to place larger, lessfrequent orders. Both types of customer are buying the sameproduct. Carbon charges a price equal to manufacturing costplus 25% for a given order. The 25% markup is set large enoughto cover nonmanufacturing costs and provide a reasonable return forCarbon. Both customer types generated the same sales in units,so Carbon's management had assumed that the customer supportcosts were about the same and priced the goods the same for eachcustomer. Carbon recently received some complaints from someof the D Class customers. Several of these customers arethreatening to take their business to other suppliers who allegedlycharge less. For example, one customer said that he could buythe same 5,000 units from a competitor for $3 per unit less thatCarbon's price. This customer wanted a price concession.

Willis Johnson, a recently hired cost accountant, suggested thatthe problem may have to do with unfair cost assignments andsuggested that customer costs be assigned to each customer categoryusing activity-based costing. He collected the followinginformation about customer-related activities and costs for themost recent quarter:

Activity	Activity cost	Cost driver	Level of cost driver
Processing sales orders	$1,760,000	Number of sales orders	440 sales orders
Selling goods	$640,000	Number of sales calls	80 sales calls
Servicing goods	$600,000	Number of service calls	300 service calls

	C Class	D Class
Total units ordered	200,000	200,000
Manufacturing cost per unit	$100	$100
Sales orders	400	40
Sales calls	40	40
Service calls	200	100

Required: Determine the profitability of each customer class using the activity information.

Reference no: EM13259761

Questions Cloud

What are the concentrations : The concentration of dissolved CO2 is fixed at 1.2 x 10^-5 M . What are the concentrations of bicarbonate and carbonate in the lake?

Calculate debt-equity ratio : HINT: calculate debt-equity ratio, fixed assets ratio,proprietary ratio. Current ratio and liquidity ratio.

Define what is the ph of a solution : HClO is a weak acid (Ka = 4.0 × 10-8) and so the salt NaClO acts as a weak base. What is the pH of a solution that is 0.077 M in NaClO?

What kind of law would have to be passed : Suppose the Supreme Court declares that Congress and the president cannot authorize the indefinite detention of terrorist suspects without a trial of some sort, whether military or civilian.

Determine profitability of customer class using activity : Carbon Company has two classes of customers designated as C Classand D Class. Determine the profitability of each customer class using the activity information.

How are html : How are HTML, XML, and Java affecting business applications on the Web? What other top scripts and languages are in use/available for businesses?

Explain the density of bleach is the same as water : A solution of household bleach contains 5.25% sodium hypochlorite, NaOCl, by mass. Assuming that the density of bleach is the same as water, calculate the volume of household bleach that should be diluted with water to make 500.0 mL of a pH = 9.80..

What is the promotional mix : What is the promotional mix? Briefly describe each of the five promotional alternatives: advertising, personal selling, public relations, sales promotion, and direct marketing.

Compute the concentrations of all species : Calculate the concentrations of all species in a 0.260 M Na2SO3 (sodium sulfite) solution. The ionization constants for sulfurous acid are Ka1 = 1.4× 10-2 and Ka2 = 6.3× 10-8.

User Account

All Pages