Question

Kingston Company produces precision components. Kingston has 11 customers, one accounts for 60% of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantites. Orders placed by the smalled customers are about the same size. Data concerning Kingston's customer activity follows:

	Larger Customer	Ten Small Customers
Units purchased	600,000	400,000
Orders placed	24	840
Number of sales calls	40	460
Manufacturing cost	1,800,000	1,200,000
Sales	3,600,000	2,400,000

Order-filling costs for Kingston Company total $720,000, and sales-force costs are $600,000.

a. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers based on sales volume.

b. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

Answer 1