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

$5,900

Step-by-step 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