ACC 504 – Group 1 – Case Study # 3
1. Assume that Beth is partly correct in her assessment of the report. Upon further
investigation, it is determined that 10% of the order processing costs and 20% of the
delivery costs would not be avoidable if CRS were to drop Mama Leone’s. Would
CRS benefit from dropping Mama Leone’s? Show your calculations.
Answer:
First, let’s calculate CRS’s operating income if it drops Mama Leone’s Pizza:
(Loss in Revenues)
Saving in Costs
Sales $ (23,400)
________
COGS (all variable) 14,025
Order processing (25 orders processed at $ 300 per order) (90% of 7,500) 6,750
Delivery (2,500 miles driven at $ 0.75 per mile) (80% of 1,875) 1,500
Rush orders (3 rush orders at $ 165 per rush order) 495
Sales calls (3 sales calls at $ 150 per call) 450
Allocated corporate overhead
