Please complete the following exercises from the end of Chapter 14:
Customer profitability, service company
Customer profitability, distribution
Variance analysis, multiple products
(page 584 Customer profitability
Be sure to show your work completely in all exercises.
14-18 Customer profitability, service company. Instant Service (IS) repairs printers and photocopiers for five multisite companies in a tristate area. IS's costs consist of the cost of technicians and equipment that are directly traceable to the customer site and a pool of office overhead. Until recently, IS estimated customer profitability by allocating the office overhead to each customer based on share of revenues. For 2013, IS reported the following results:
Tina Sherman, IS's new controller, notes that office overhead is more than 10% of total costs, so she spends a couple of weeks analyzing the consumption of office overhead resources by customers. She collects the following information:
Compute customer-level operating income using the new information that Sherman has gathered.
Required
Prepare exhibits for IS similar to Exhibits 14-4 and 14-5. Comment on the results.
What options should IS consider, with regard to individual customers, in light of the new data and analysis of office overhead?
Use the ABC information to compute the operating income of each customer in August 2013. Comment on the results and what, if anything, Flair should do.
Required
Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $58,120. Best Drugs reports operating losses of $23,670 for the bottom 40% of its customers. Make four recommendations that you think Best Drugs should consider in light of this new customer-profitability information.
14-25 Variance analysis, multiple products. Soda-King manufactures and sells two soft drinks: Kola and Limor. Budgeted and actual results for 2014 are as follows:
The stand-alone revenue-allocation method based on selling price of each product
The incremental revenue-allocation method, with Him ranked as the primary product
The incremental revenue-allocation method, with Her ranked as the primary product
The Shapley value method, assuming equal unit sales of Him and Her
Actual usage of the three departments
Planned usage of the three departments
Practical capacity of the three departments
All vacant office space is absorbed by the university and is not allocated to the departments.
All occupied office space costs are allocated on the basis of actual square footage used.
All common area costs are allocated on the basis of a department's practical capacity.
Calculate the cost allocated to each department in 2014 under this plan. Do you think the allocation method used here is appropriate? Explain.