Chapter 5-22 PDF

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ACC 405 Chapter 5-22 HW...

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Accounting 405, Cost Management: A ACC CC 4051001 Summer 2017 Chapter 5-2

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Jennifer Cranford instructions | help 

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1. 1.00 00 points

Garner Industries manufactures precision tools. The firm uses an activity-based costing system. CEO Deb Garner is very proud of the accuracy of the system in determining product costs. She noticed that since the installment of the ABC system 10 years earlier the firm had become much more competitive in all aspects of the business and earned an increasing amount of profits every year. In the last two years the firm sold 0.540 million units to 4,100 customers each year. The manufacturing cost is $700 per unit. In addition, Garner has determined that the order-filling cost is $47.22 per unit. The $936.00 selling price per unit includes 17% markup to cover administrative costs and profits. The order-filling cost per unit is determined based on the firm’s costs for order-filling activities. Orderfilling capacity can be added in blocks of 60 orders. Each block costs $60,000. In addition, the firm incurs $1,500 order-filling costs per order. Garner serves two types of customers designated as PC (Preferred Customer) and SC (Small Customer). Each of the 100 PCs buys, on average, 4,000 units in two orders. The firm also sells 140,000 units to 1,000 SCs. On average each SC buys 140 units in 10 orders. Ed Cheap, a buyer for one PC, complains about the high price he is paying. Cheap claims that he has been offered a price of $800 per unit and threatens to take his business elsewhere. Garner does not give in because the $800 price Cheap demands is below cost. Besides, she has recently raised the price to SC to $878.57 per unit and experienced no decline in orders. Required: 1. Demonstrate how Garner arrives at the $47.22 order-filling cost per unit.

Total number of orders

10,200

Number of orders per block

60

Total number of blocks

170

Cost per block

$

60,000

Total cost of order blocks

$

Total number of orders

10,200,000

10,200

Per order order-filling cost

$

1,500

Total order-filling costs assigned per order

15,300,000 $ 25,500,000

Total order-filling cost Total units sold

540,000 $

Order-filling cost per unit

47.22

2. What would be the amount of loss (profit) per unit if Garner sells to Cheap at $800 per unit? (Do not round your intermediate calculations. Loss amounts should be indicated with a minus sign. Round your answer to 2 decimal places.) Amount of profit (loss)

$

(17.56) per unit

3. What is the amount of loss (profit) per unit at the $878.57 selling price per unit for units sold to SC? (Loss amounts should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)

Amount of profit (loss)

per unit

rev: 03_04_2017_QC_CS-81414

References

Worksheet

eBook & Resources

Difficulty: 3 Hard

Learning Objective: 05-06 Use an activity-based approach to analyze customer profitability.

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