Question

Donna Company makes three types of products. The company has two types of customers. The cost to serve all customers is $12,000 and is allocated to customer types based on the number of manager visits to customer locations. The following data are available: Product 1 Product 2 Product 3 Sales $5,000 $6,000 $30,000 Cost of goods sold 4,000 4,800 15,000 Gross margin $1,000 $1,200 $15,000 Customer Type 1 Customer Type 2 Product 1 Sales $500 $4,500 Product 2 Sales $1,000 $5,000 Product 3 Sales $16,000 $14,000 Manager visits 4 16 What is the operating income for all three products for Customer Type 1

Answer 1

Answer:

$5,900

Explanation:

                              1                                   2                                   3

 Sales                 $5000                        $6000                        $30000

Cost of good      $4000                        $4800                        $15,000

Gross margin      $1000                         $1,200                        $15,000

                            Type 1                        Type 2              Total

Product 1            $500                            $4500              $5000

Product 2           $1000                          $5000              $6000

Product 3           $16000                        $14000            $30000

Type 1                 Sale                Cost

Product 1         $500                500/5000*4000 = $400

Product 2         $1000             1000/6000*4800 = $800  

Product 3         $16,000           16000/30000*15000= $8000

Total                 $17500                                                  $9200

Gross profit =(17500-9200)= $8300

Manager visit = 4:16

Cost to serve all customers = 12,000

Cost to serve customer type 1 = 4/20*12000 =$2,400

Operating income for type 1 = $(8300-2400) =$5900