Cost Accounting (14th Edition)

532 CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS
customer profitability by allocating the office overhead to each customer based on share of revenues. For
2012, IS reported the following results:
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5
A B C D E F G
Avery Okie Wizard Grainger Duran Total
Revenues $ 260,000 $ 200,000 $ 322,000 $ 122,000 $ 212,000 $ 1,116,000
Technician and equipment cost 182,000 175,000 225,000 107,000 178,000 867,000
Office overhead allocated 31,859 24,507 39,457 14,949 25,978 136,750
Operating income $ 46,141 $ 493 $ 57,543 $ 51 $ 8,022 $ 112,250
Tina Sherman, IS’s new controller, notes that office overhead is more than 10% of total costs, so she spends
a couple of weeks analyzing the consumption of office overhead resources by customers. She collects the
following information:
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2
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5
I J K
Activity Area
Cost Driver Rate
Service call handling
$ 75 per service call
Parts ordering
$ 80 per Web-base parts order
Billing and collection
$ 50 per bill (or reminder)
Customer database maintenance $ 10 per service call
A B C D E F
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Avery Okie Wizard Grainger Duran
9 Number of service calls 150 240 40 120 180
10 Number of Web-based parts orders 120 210 60 150 150
11 Number of bills (or reminders) 30 90 90 60 120
Required
1. Compute customer-level operating income using the new information that Sherman has gathered.
2. Prepare exhibits for IS similar to Exhibits 14-7 and 14-8. Comment on the results.
3. What options should IS consider, with regard to individual customers, in light of the new data and
analysis of office overhead?
14-22 Customer profitability, distribution. Figure Four is a distributor of pharmaceutical products. Its
ABC system has five activities:
Activity Area Cost Driver Rate in 2012
1. Order processing $40 per order
2. Line-item ordering $3 per line item
3. Store deliveries $50 per store delivery
4. Carton deliveries $1 per carton
5. Shelf-stocking $16 per stocking-hour