Activities: Rate

Customer orders $ 42 per hour

Customer fitting $ 30 per hour
Rush orders $ 90 per rush order
Return visit for repair $ 40 per return visit

QUESTION 1
CUSTOMER
01 02 03 04 05 06
Customer-level costs
  Customer orders ($42 × 3; 10; 1; 8; 17; 5) $ 126 $ 420 $ 42 $ 336 $ 714 $ 210
  Customer fittings ($30 × 1; 6; 0; 0; 4; 0) $ 30 $ 180 $ - $ - $ 120 $ -
  Rush order costs ($90 × 0; 2; 1; 2; 3; 0) $ - $ 180 $ 90 $ 180 $ 270 $ -
  Return visits for repair ($40 × 0; 0; 0; 0; 0; 1) $ - $ - $ - $ - $ - $ 40
        Total customer-level costs $ 156 $ 780 $ 132 $ 516 $ 1,104 $ 250

01 02 03 04 05 06
Customer-level operating income
Revenue 850 4500 280 2200 5500 650
Cost of product 510 2700 168 1320 3300 390
Gross profit 340 1800 112 880 2200 260
Customer-level costs $ 156 $ 780 $ 132 $ 516 $ 1,104 $ 250
Customer-level operating income $ 184 $ 1,020 $ (20) $ 364 $ 1,096 $ 10
Rank 4 2 6 3 1 5
Customer-level operating income margin 21.65% 22.67% -7.14% 16.55% 19.93% 1.54%

QUESTION 2
Customer 03 is unprofitable. Customer 06 has the lowest operating income and operating income as a percentage of revenue. Customer
03 is unprofitable because it has very low revenues and requires a rush order. Customer 06 has a low operating income percentage
because of many hours spent on customer orders and the cost of repair and refitting during a return visit.  
Adelle Delights could make these customers more profitable by charging more for rush orders and increasing the selling price, or
requiring a minimum total revenue for free post-sales service.  Whatever decision it takes, Adelle Delights must also consider the effect
the decision might have on sales.
 Known:
Salaries of 14 employees 504,000
Setup hours capacity 28,000 therefore hours per employee = 2000
Value added standard hours 2,000
ACTUAL SETUP HOURS 26,200

SP = TOTAL COST/COST DRIVER

Answer

1 Standard Price (SP) --> standard salaries per hours 18

SQ/VALUE ADDED OUTPUT ACTIVITY 2,000 hours
AQ 28,000 hours
AU 26,200 hours
Value Added Activity Actual Cost (SP
(SP X SQ) X AQ)
36,000 Non Value Added or Volume 504,000
Variances
468,000
Value Added Activity Non Value Added or Volume Actual Cost (SP
2 (SP X SQ) Variances X AQ)

Setup 36,000 468,000 504,000

Highlighting the non value added cost is important because the non value added activities doesn’t increase the cusstomer value, so non value added co
should be reduced or eliminated

3 When the company able to reduce the demand for the setup activity from 26.200 to 4.000 hours:
Remember that one employee can get 2.000 hours, therefore in actual cost condition, the company needs 14 employees, whiile in actual used conditio
company still need 14 employees (26.200 hours:2.000 hours is more than 13)
 Therefore when it is stated become 4.000 hours, then the employee needed is 2 employees (4.000 hours : 2000 hours). The effect is the company can
the cost amounted 12 employees x 2.000 hours x $ 18 = $432.000

Inspection is non value added activity as it doesn't give any impact to the customer's value. Actually, when the company can choose a good supplier to
good material comonent, they don't need to do inspection and also the unnecessary activities such as rework, reordering, and others.
4
 Actual Used
(SP X AU)
Unused
Capacity 471,600
Variance
32,400

omer value, so non value added cost

yees, whiile in actual used condition, the

rs). The effect is the company can reduce

any can choose a good supplier to supply

ering, and others.