Colby Company makes cases for cell phones of all sizes and types for sale through...
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Accounting
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models:
Activity Cost PoolActivity RatesSupporting manufacturing$2per direct labour-hourOrder processing$27per orderCustomer service$93per customer
Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months:
Standard ModelDeluxe ModelNumber of cases27095Number of orders52Direct labour-hours per case0.250.40Selling price per case$47$67Direct materials cost per case$24$27
The company's direct labour rate is $28 per hour.
Required:
Using the company's ABC system, compute the customer margin of Cell City.
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