Question

Costs of Different Customer Classes

Kaune Food Products Company manufactures canned mixed nuts with an average manufacturing cost of $50 per case (a case contains 24 cans of nuts). Kaune sold 153,000 cases last year to the following three classes of customer:

Customer	Price per Case				Cases Sold
Supermarkets		$64				80,000
Small grocers		95				43,000
Convenience stores		89				30,000

The supermarkets require special labeling on each can costing $0.03 per can. They order through electronic data interchange (EDI), which costs Kaune about $51,000 annually in operating expenses and depreciation. Kaune delivers the nuts to the stores and stocks them on the shelves. This distribution costs $43,000 per year.

The small grocers order in smaller lots that require special picking and packing in the factory; the special handling adds $20 to the cost of each case sold. Sales commissions to the independent jobbers who sell Kaune products to the grocers average 6 percent of sales. Bad debts expense amounts to 7 percent of sales.

Convenience stores also require special handling that costs $25 per case. In addition, Kaune is required to co-pay advertising costs with the convenience stores at a cost of $18,000 per year. Frequent stops are made to each convenience store by Kaune delivery trucks at a cost of $27,000 per year.

Required:

1. Calculate the total cost per case for each of the three customer classes. Round intermediate calculations and final answers to four decimal places. Use the rounded values for subsequent requirements.

	Total Cost Per Case
Supermarkets	$
Small grocers	$
Convenience stores	$

2. Using the costs from Requirement 1, calculate the profit per case per customer class. Round intermediate computations to four decimal places and final answers to two decimal places.

	Profit Percentage Per Case
Supermarkets		%
Small grocers		%
Convenience stores		%

Answer 1

Super Markets
Particulars	Total Cost
Cases Sold	80000
Label and Packing Cost (80000*24*0.03)	$      57,600.00
Operating Expenses and Depreciation	$      51,000.00
Distribution cost	$      43,000.00
Total Cost	$    151,600.00
Cost per case	$               1.90
Small Grocers
Particulars	Total Cost
Cases Sold	43000
Handling cost (43000*20)	$    860,000.00
Sales commission (43000*95*6%)	$    245,100.00
Bad debts (43000*95*7%)	$    285,950.00
Total Cost	$ 1,391,050.00
Cost per case	$             32.35
Convenience Stores
Particulars	Total Cost
Cases Sold	30000
Handling cost	$    750,000.00
Advertising cost	$      18,000.00
Transportation	$      27,000.00
Total Cost	$    795,000.00
Cost per case	$             26.50

Type of Stores	Units	Unit Sales Price	Unit Cost	Sales	Total Cost	Profit	Profit %
Super Markets	80,000	$               64.00	$     1.90	$ 5,120,000	$    151,600	$ 4,968,400	97.04%
Small Grocers	43,000	$               95.00	$   32.35	$ 4,085,000	$ 1,391,050	$ 2,693,950	65.95%
Convenience Stores	30,000	$               89.00	$   26.50	$ 2,670,000	$    795,000	$ 1,875,000	70.22%