Schneider Electric manufactures power distribution equipment for commercial cust

Question

Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Bid preparation Shipment Support standard items Support nonstandard items Activity Base Number of bid requests Number of shipments Number of standard items ordered Number of nonstandard items ordered Activity Rate $200/request $16/shipment $20/std. item $75/nonstd tem Assume that the company had the following gross profit information for three representative customers 2 Revenu 3Cost of goods sold 4 Gross profit 5 Gross profit as a percent of sales Customer 1 Customer 2 Customer 3 39,000.00 $26,000.00 $31,200.00 4,180.0013,520.00 15,600.00 14,820.00 $12,480.00 $15,600.00 50.0% 38.0% 48.0% The administrative records indicated that the activity-base usage quantities for each customer were as follows: Activity Base Number of bid requests Number of shipments Number of standard items ordered Number of nonstandard items ordered Customer 1 12 16 Customer 2 8 24 38 30 Customer 3 25 45 56 54 18

Explanation / Answer

SCHNEIDER ELECTRIC CUSTOMER PROFITABILITY REPORT CUSTOMER 1 CUSTOMER 2 CUSTOMER 3 Number of bid request 12 8 25 Number of Shipment 16 24 45 Number of Std item ordered 48 38 56 Number of Non std items ordered 18 30 54 Revenues 39000 26000 31200 Cost of Goods sold 24180 13520 15600 Gross profit 14820 12480 15600 Less: Customer Service Activities Bid Preparation(@$ 200 per bid request) 2400 1600 5000 Shipment(@ $ 16 per shipment) 256 384 720 Support Std items(@ 20 per std item) 960 760 1120 Support Non Std (@$75 per non std item) 1350 2250 4050 Net Income from operations 9854 7486 4710 Percentage of income for sales 25.27% 28.79% 15.10% (Net income from operations/ Sales Revenue *100)

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