Question

Revised Problem 5-65

Fresno Fiber Optics, Inc. manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company VP of marketing, the cost management staff has recently completed a customer profitability study. The following activity-based costing information was the basis for the analysis.

Customer - Related Activities				Cost Driver Base			Cost Driver Rate
Sales activity				Sales visits			$        860
Billing and Collection				Invoices			160
Order taking				Purchase orders			220
Special shipping				Shipments			430

Customer - Related Activities				Trace Telecom			Caltex Computer
Sales activity				14 visits			18 visits
Billing and Collection				22 invoices			26 invoices
Order taking				26 orders			28 orders
Special Shipping				12 shipments			14 shipments

The following additional information has been completed for Fresno Fiber Optics for two of its customers, Trace Telecom and Caltrex Computer, for the most recent year.

			Trace Telecom		Caltex Computer
Sales revenue			$ 240,000		$     226,000
Cost of goods sold			140,000		110,000
General selling costs			42,000		32,000
General administrative costs			24,000		18,000
Required:
1. Prepare a customer profitability analysis for Trace Telecom and Caltex Computer.
(Hint: Refer to Exhibit 5-13 for guidance).
2. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above.
Show how the solution will change if the following information changes: Trace Telecom's
cost of goods sold was $114,000 and Caltex Computer's sales revenue was $206,000.

Answer 1