Problem:
Northern Distributors Plc. sells bottled water to corporate clients. The cost it pays for each bottle of water is £1.50. Its normal (list) selling price is £1.99 per bottle. Northern has decided to analyse the profitability of each of its five customers (101, 102, 103, 104 and 105). The following table details information about each of the five customers:
|
|
101
|
102
|
103
|
104
|
105
|
|
Number of Bottles Sold
|
50,000
|
75,000
|
35,000
|
90,000
|
10,000
|
|
Price Discount
|
5%
|
10%
|
10%
|
5%
|
0%
|
|
Number of Orders
|
50
|
50
|
35
|
100
|
25
|
|
Number of Sales Visits
|
5
|
8
|
3
|
10
|
4
|
|
Number of Deliveries
|
25
|
30
|
35
|
50
|
25
|
|
Distance to Customer
|
10 km
|
5 km
|
30 km
|
15 km
|
10 km
|
Using an activity based costing system, Northern has adopted the following four activities and related cost per activity driver:
- Order Taking (£60/order);
- Sales Visit (£300/visit);
- Delivery (£6/km);
- Product Handling (£0.10 per unit).
Required:
Determine the profitability of each of the five customers.
Additional Information:
This question is from Accounting as well as it discusses about computation of four activities based on activity costing system.