Question

Costs of Different Customer Classes

Kaune Food Products Company manufactures canned mixed nuts with an average manufacturing cost of $49 per case (a case contains 24 cans of nuts). Kaune sold 156,000 cases last year to the following three classes of customer:

Customer	Price per Case				Cases Sold
Supermarkets		$63				80,000
Small grocers		96				46,000
Convenience stores		91				30,000

The supermarkets require special labeling on each can costing $0.02 per can. They order through electronic data interchange (EDI), which costs Kaune about $60,000 annually in operating expenses and depreciation. Kaune delivers the nuts to the stores and stocks them on the shelves. This distribution costs $41,000 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 $27 per case. In addition, Kaune is required to co-pay advertising costs with the convenience stores at a cost of $15,000 per year. Frequent stops are made to each convenience store by Kaune delivery trucks at a cost of $24,000 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

Cost of cases sold to Supermarkets:

Manufacturing Cost	39,20,000
Special Labelling	38,400
EDI operating Charges	60,000
Distribution Cost	41,000
Total Cost	40,59,400
Units Sold	80,000
Cost per unit	50.74

Cost of cases sold to Small Grocers:

Manufacturing Cost	22,54,000
Special handling Cost	9,20,000
Sales Commission @ 6% of Sales	2,64,960
Bad Debt Expense	3,09,120
Total Cost	37,48,080
Units Sold	46,000
Cost per unit	81.48

Cost of cases sold to Convenience Stores:

Manufacturing Cost	14,70,000
Special handling Cost	8,10,000
Advertising costs	15,000
Truck Stoppage Charges	24,000
Total Cost	23,19,000
Units Sold	30,000
Cost per unit	77.30

	Super Markets	Small Grocers	Convenience Stores
Selling Price per unit	63.00	96.00	91.00
Cost per unit	50.74	81.48	77.30
Profit per unit	12.26	14.52	13.70
Profit (%)	19.46%	15.13%	15.05%