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	Activity Base	Activity Rate
Bid preparation	Number of bid requests	$400 per request
Shipment	Number of shipments	$80 per shipment
Support standard items	Number of standard items ordered	$25 per std. item
Support nonstandard items	Number of nonstandard items ordered	$150 per nonstd. item

Assume that the company had the following gross profit information for three representative customers:

1		Customer 1	Customer 2	Customer 3
2	Revenue	$120,000.00	$200,000.00	$160,000.00
3	Cost of goods sold	76,800.00	110,000.00	83,200.00
4	Gross profit	$43,200.00	$90,000.00	$76,800.00
5	Gross profit as a percent of sales	36.0%	45.0%	48.0%

The administrative records indicated that the activity-base usage quantities for each customer were as follows:

Activity Base	Customer 1	Customer 2	Customer 3
Number of bid requests	14	38	55
Number of shipments	30	60	48
Number of standard items ordered	15	30	50
Number of nonstandard items ordered	5	70	80

	Required:
a.	Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column for each customer. Refer to the Labels and Amount Descriptions for exact wording of text entries. Be sure to complete the statement heading. Enter all amounts as positive numbers, except for a negative income from operations. Round percentages to the one decimal place. Colons will appear automatically.
b.	Interpret the report in part (a).

Answer 1

Schneider Electric
Customer Profitability Report
For the Year Ended December 31, 20xx
	Customer 1	Customer 2	Customer 3
Revenue (A)	$       1,20,000.00	$   2,00,000.00	$1,60,000.00
Cost of goods sold (B)	$           76,800.00	$   1,10,000.00	$    83,200.00
Gross profit (C) = A-B =	$           43,200.00	$      90,000.00	$    76,800.00
Customer service activities:
Bid preparation	$             5,600.00	$      15,200.00	$    22,000.00
Shipment	$             2,400.00	$         4,800.00	$      3,840.00
Support standard items	$                 375.00	$            750.00	$      1,250.00
Support nonstandard items	$                 750.00	$      10,500.00	$    12,000.00
Total customer service activities (D)	$             9,125.00	$      31,250.00	$    39,090.00
Income from operations after customer service activities (E) = C-D =	$           34,075.00	$      58,750.00	$    37,710.00
Gross profit as a percent of sales = C / A =	36%	45%	48%
Income from operations after customer service activities as a percent of sales = E / A =	28%	29%	24%