1) determine profitability of the average customer in each category if the order
ID: 2587904 • Letter: 1
Question
1) determine profitability of the average customer in each category if the order processing and sales costs are allocated on sales revenues2) recalculate your solution for question 1 using activity based costing approach
3) if the order processing costs are all fixed costs and Bend Company has the capacity to process 180 orders, what are the resources used and the resources unused? es precistem ComponenS as ent abut 80% of' th c tom, Sales e De remain vM Units pes orde ger orlar 1o.ao 1,000- Ousside Sales T Outside Sales leo Costs 709 006
Explanation / Answer
1)
Total of order processing cost and sales cost = $275,000 + 700,000 = $975,000
Distribution as per sales revenue in the ratio of 11:3
Large customers = 975,000*11/14 = $766,071
Small customers = 975,000*3/14 = $208,929
2) Activity based costing:
Order processing cost per order = $275,000/140 orders = $1964.29
Large customers = 20 orders * $1,964.29 = $39,286
Small customers = 120 orders * $1,964.29 = $235,715
Sales cost per sales call = $700,000 / 115 sales call = $6086.96 per call
Large customers = $6,086.96 * 40 sales calls = $243,478
Small customers = $6086.96 * 75 sales calls = $456,522
3)
Total no. of orders can be processed = 180
Fixed cost = 275,000
Cost per order = 275,000/180 = $1,527.78
Orders capacity currently not in use = 180-140 = 40
Used resources = 140 orders * $1,527.78 = $213,889
Unused resources = 40 orders * 1,527.78 = $61,111
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