Answer:
Customer and Product Margin under Activity-based Costing and Traditional Costing
True Statements:
1. If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will decrease.
2. If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will be unaffected.
Explanation:
Customer Margin is the difference between the total revenue generated from a customer minus the acquisition and service costs. In the above instance, the customer margin decreases because of the costs of servicing the customer's frequent orders. Customer service costs are usually higher with more frequent orders, when activity-based costing is employed because frequent orders increase the activity level and the associated costs.
Product Margin is the profit margin generated per product. It is the markup on the cost of the product. It shows the difference in amount between the selling price and the manufacturing cost. Frequent orders cannot change the product margin under the traditional costing technique unlike it does with the activity-based costing technique.
This answer would be reliability.
