Reference no: EM13956504

Refer to the information in Exercise 8-15. For the coming year, Delta Products has told Johnson Brands that it will be switched to an activity-based pricing system or it will be dropped as a customer. In addition to regular prices, Johnson will be required to pay:

In Exercise 8-15, Delta Products has determined the following costs:

Order processing (per order)............... $ 6.00
Additional handling costs if order marked rush (per order).... $10.00
Customer service calls (per call)................ $12.00
Relationship management costs (per customer per year)...... $3,000
In addition to these costs, product costs amount to 85 percent of sales. In the prior year, Delta had the following experience with one of its customers, Johnson Brands:
Sales .............$52,000
Number of orders......... 250
Percent of orders marked rush ... 70%
Calls to customer service...... 160
Order processing (per order)................. $7
Additional handling costs if order marked rush (per order).... $12
Customer service calls (per call)............. $17

Required

a. Calculate the profitability of the Johnson Brands account if activity is the same as in the prior

b. Assume that Johnson Brands decides to accept the activity-based pricing system offered by Delta Products. What changes will likely be made by Johnson?