The total direct labor mix variance can also be computed as the sum of the direct labor mix
variances for each input:
Direct labor
mix variance
for each input
=
Actual direct
labor input
mix percentage
–
Budgeted direct
labor input
mix percentage
Actual total quantity
of all direct labor
inputs used
Budgeted price
of direct labor
inputs
14-50
14-37 (30 min.) Purposes of cost allocation
SR460. Therefore, only inventoriable costs, such as direct materials, direct labor, and
manufacturing overhead, are included in the cost of SR460 that are given to the financial
2. For the four different purposes considered in the question, the cost of one unit of SR460
would be determined as follows:
a.
b.
c.
d.
Direct materials
$28.50
$28.50
$28.50
$28.50
Direct manufacturing labor
16.35
16.35
16.35
16.35
Variable manufacturing overhead
8.76
8.76
8.76
8.76
Allocated fixed manufacturing
overhead
32.84
32.84
32.84
Research and development costs
specific to SR460
6.20
Marketing costs
5.95
Sales commissions
11.40
Allocated administrative costs of
production department
5.38
5.38
Allocated administrative costs of
corporate headquarters
18.60
Customer service costs
3.05
Distribution costs
8.80
Total
$145.83
$86.45
$53.61
$91.83
14-51
14-38 (30 min.) Customer-cost hierarchy, customer profitability.
1.
Architecture Firms
Commercial Clients
Total
Total
Total
(all customers)
Architecture
AA
BB
Commercial
CC
DD
EE
(1) = (2) + (5)
(2) = (3) + (4)
(3)
(4)
(5) = (6)+(7)+(8)
(6)
(7)
(8)
Gross Revenues
$250,305
$105,700
$58,500
$47,200
$144,605
$89,345
$36,960
$18,300
(less) Discounts
___6,765
___5,850
5,850
_____0
915
_____0
_____0
915
Net Revenues
243,540
99,850
52,650
47,200
143,690
89,345
36,960
17,385
Customer-level costs
163,885
66,050
36,750
29,300
97,835
54,645
28,930
14,260
Customer-level operating income
79,655
33,800
$15,900
$17,900
45,855
$34,700
$ 8,030
$ 3,125
Distribution-channel (Overhead) costsa
55,315
21,275
34,040
Distribution-channel-level oper. income
24,340
$ 12,525
$ 11,815
Corporate-sustaining costsa
29,785
Operating income
$ (5,445)
2.
Cumulative
Customer-Level
Operating Income
Customer-Level
Customer-Level
Cumulative
as a % of Total
Operating
Customer
Operating Income
Customer-Level
Customer-Level
Customer
Income
Revenue
as a % of Revenue
Operating Income
Operating Income
Code
(1)
(2)
(3) = (1)
(2)
(4)
(5) = (4)
$79,655
CC
$34,700
$ 89,345
38.84%
$34,700
43.6%
BB
17,900
47,200
37.92%
52,600
66.0%
AA
15,900
52,650
30.20%
68,500
86.0%
DD
8,030
36,960
21.72%
76,530
96.1%
EE
3,125
17,385
17.98%
79,655
100.0%
$79,655
$243,540
14-52
3. Designs by Denise reported a net operating loss for the quarter. All of Denise’s customers are
profitable, but the presence of substantial corporate-sustaining costs led to the overall negative
level of income. Offering a discount to Attractive Abodes in order to gain their business was a
14-53
14-39 (40 min.) Customer profitability and ethics.
1. Order taking – Customer batch-level
Product handling – Customer output-unit-level
2. Customer-level operating income based on expected cost of orders:
Customers
SR
SRU
NS
SB
SM
WS
Revenues
$50 × 250; 550; 320; 130; 450; 1,200
$12,500
$27,500
$16,000
$6,500
$22,500
$60,000
Less: Returns
$50 ×20; 35; 0; 0; 40; 60
1,000
1,750
0
0
2,000
3,000
Net Revenues
$50 ×230; 515; 320; 130; 410; 1140
11,500
25,750
16,000
6,500
20,500
57,000
Cost of goods sold
$35 × 230; 515; 320; 130; 410; 1,140
8,050
18,025
11,200
4,550
14,350
39,900
Gross margin
3,450
7,725
4,800
1,950
6,150
17,100
Customer-level operating costs:
Order taking
$30 ×6; 15; 8; 7; 20; 30
180
450
240
210
600
900
Product handling
$2 × 250; 550; 320; 130; 450; 1,200
500
1,100
640
260
900
2,400
Delivery
$0.50 × 420; 620; 470; 280; 806; 900
210
310
235
140
403
450
Expedited delivery
$325 × 0; 6; 0; 0; 2; 5
0
1,950
0
0
650
1,625
Restocking
$100 ×2; 1; 0; 0; 2; 6
200
100
0
0
200
600
Visits to customers
150
150
150
150
150
150
Sales commissions
$25× 6; 15; 8; 7; 20; 30
150
375
200
175
500
750
Total customer-level operating costs
1,390
4,435
1,465
935
3,403
6,875
Customer-level operating income
$ 2,060
$ 3,290
$ 3,335
$1,015
$ 2,747
$10,225
14-54
3. Customer level operating income based on actual order costs:
Customer
SR
SRU
NS
SB
SM
WS
Revenues
$50 × 250; 550; 320; 130; 450; 1,200
$12,500
$27,500
$16,000
$6,500
$22,500
$60,000
Less: Returns
$50 ×20; 35; 0; 0; 40; 60
1,000
1,750
0
0
2,000
3,000
Net Revenues
$50 ×230; 515; 320; 130; 410; 1,140
11,500
25,750
16,000
6,500
20,500
57,000
Cost of good sold
$35 × 230; 515; 320; 130; 410; 1,140
8,050
18,025
11,200
4,550
14,350
39,900
Gross margin
3,450
7,725
4,800
1,950
6,150
17,100
Customer-level operating costs:
Order taking
$14 × 6; $30 × 15; $14 × 8; $14 × 7;
$14 × 20; $14 × 30
84
450
112
98
280
420
Product handling
$2 × 250; 550; 320; 130; 450; 1,200
500
1,100
640
260
900
2,400
Delivery
$0.50 × 420; 620; 470; 280; 806; 900
210
310
235
140
403
450
Expedited delivery
$325 × 0; 6; 0; 0; 2; 5
0
1,950
0
0
650
1,625
Restocking
$100 ×2; 1; 0; 0; 2; 6
200
100
0
0
200
600
Visits to customers
150
150
150
150
150
150
Sales commissions
$25× 6; 15; 8; 7; 20; 30
150
375
200
175
500
750
Total customer-level operating costs
1,294
4,435
1,337
823
3,083
6,395
Customer-level operating income
$ 2,156
$ 3,290
$ 3,463
$1,127
$ 3,067
$ 10,705
Comparing the answers in requirements 2 and 3, it appears that operating income is higher than
expected, so the management of Snark Corporation would be very pleased with the performance
of the salespeople for reducing order costs. Except for SRU, all of the customers are more
profitable than originally reported.
14-55
4. Customer-level operating income based on actual orders and adjusted commissions
Customer
SR
SRU
NS
SB
SM
WS
Revenues
$50 × 250; 550; 320; 130; 450; 1,200
$12,500
$27,500
$16,000
$6,500
$22,500
$60,000
Less: Returns
$50 ×20; 35; 0; 0; 40; 60
1,000
1,750
0
0
2,000
3,000
Net Revenues
$50 ×230; 515; 320; 130; 410; 1140
11,500
25,750
16,000
6,500
20,500
57,000
Cost of good sold
$35 × 230; 515; 320; 130; 410; 1,140
8,050
18,025
11,200
4,550
14,350
39,900
Gross margin
3,450
7,725
4,800
1,950
6,150
17,100
Customer-level operating costs:
Order taking
$30 ×3; 15; 3; 4; 5; 15
90
450
90
120
150
450
Product handling
$2 × 250; 550; 320; 130; 450; 1,200
500
1,100
640
260
900
2,400
Delivery
$0.50 × 420; 620; 470; 280; 806; 900
210
310
235
140
403
450
Expedited delivery
$325 × 0; 6; 0; 0; 2; 5
0
1,950
0
0
650
1,625
Restocking
$100 ×2; 1; 0; 0; 2; 6
200
100
0
0
200
600
Visits to customers
150
150
150
150
150
150
Sales commissions
$25× 3; 15; 3; 4; 5; 15
75
375
75
100
125
375
Total customer-level operating costs
1,225
4,435
1,190
770
2,578
6,050
Customer-level operating income
$ 2,225
$ 3,290
$ 3,610
$1,180
$ 3,572
$11,050
5. The behavior of the salespeople is costing Snark Corporation $1,119 in profit (the
difference between the incomes in requirements 3 and 4.) Although management thinks the