Question

Fresno Fiber Optics, Inc. manufactures fiber optic cables for the computer
and telecommunication 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 compiled for Fresno Fiber Optics
for two of its customers, Trace Telecom and Caltex 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

1

	Trace Telecom
	Activities	Cost Driver Rate	Amount
Sales activity	14	860	12040
Billing and Collection	22	160	3520
Order taking	26	220	5720
Special shipping	12	430	5160
Total			26440

	Caltex Computer
	Activities	Cost Driver Rate	Amount
Sales activity	18	860	15480
Billing and Collection	26	160	4160
Order taking	28	220	6160
Special shipping	14	430	6020
Total			31820

	Trace Telecom	Caltex Computer
Sales revenue	240000	226000
Cost of goods sold	140000	110000
Gross Margin	100000	116000
Selling And Admin Expense
General selling costs	42000	32000
General administrative costs	24000	18000
Customer Ralated Cost
Sales activity	12040	15480
Billing and Collection	3520	4160
Order taking	5720	6160
Special shipping	5160	6020
Total Selling and Admin Cost	92440	81820
Net Income	7560	34180

2

	Cost Driver Base	Cost Driver Rate
Customer - Related Activities
Sales activity	Sales visits	860
Billing and Collection	Invoices	160
Order taking	Purchase orders	220
Special shipping	Shipments	430
	Trace Telecom
	Activities	Cost Driver Rate	Amount
Sales activity	14	860	12040
Billing and Collection	22	160	3520
Order taking	26	220	5720
Special shipping	12	430	5160
Total			26440
	Caltex Computer
	Activities	Cost Driver Rate	Amount
Sales activity	18	860	15480
Billing and Collection	26	160	4160
Order taking	28	220	6160
Special shipping	14	430	6020
Total			31820
	Trace Telecom	Caltex Computer
Sales revenue	240000	206000
Cost of goods sold	114000	110000
Gross Margin	126000	96000
Selling And Admin Expense
General selling costs	42000	32000
General administrative costs	24000	18000
Customer Ralated Cost
Sales activity	12040	15480
Billing and Collection	3520	4160
Order taking	5720	6160
Special shipping	5160	6020
Total Selling and Admin Cost	92440	81820
Net Income	33560	14180