In: Accounting
Go-Mask-Yourself Ltd. makes face masks of all sizes and shapes
for sale through specialty online retailers. The company makes a
standard model as well as a deluxe model. Management has designed
an ABC system with the following activity cost pools and activity
rates for these models: Activity Cost Pool Activity Rates
Supporting manufacturing $2 per direct labour-hour Order processing
$11 per order Customer service $77 per customer
Management would like an analysis of the profitability of a
particular customer, T.Hanks Co., which has ordered the following
products over the last 12 months: Standard Model Deluxe Model
Number of cases $ 110 $ 15 Number of orders $ 5 $ 2 Direct
labour-hours per case $ 0.25 $ 0.40 Selling price per case $ 31 $
51 Direct materials cost per case $ 8 $ 11
The company’s direct labour rate is $12 per hour.
Required Using the company’s ABC system, compute the customer
margin of T.Hanks Co.