1.

Order taking – Customer batch-level

Product handling – Customer output-unit-level
Delivery – Customer batch-level
Expedited delivery – Customer batch-level
Restocking – Customer batch-level
Visits to customers – Customer sustaining-level
Sales commissions – Customer batch-level

2. Customer-level operating income based on expected cost of orders:

Customers
AC DC MC JC RC BC
Revenues
$30 × 225; 520; 295; 110; 390; 1,050 $6,750 $15,600 $8,850 $3,300 $11,700 $31,500
Less: Returns
$30 ×15; 40; 0; 0; 35; 40 450 1,200 0 0 1,050 1,200
Net Revenues
$30 ×210; 480; 295; 110; 355; 1,010 6,300 14,400 8,850 3,300 10,650 30,300
Cost of goods sold
$18 × 210; 480; 295; 110; 355; 1,010 3,780 8,640 5,310 1,980 6,390 18,180
Gross margin 2,520 5,760 3,540 1,320 4,260 12,120
Customer-level operating
Order taking
$15 ×10; 20; 9; 12; 24; 36 150 300 135 180 360 540
Product handling
$1 × 225; 520; 295; 110; 390; 1,050 225 520 295 110 390 1,050
Delivery
$1.20 × 360; 580; 350; 220; 790; 850 432 696 420 264 948 1,020
Expedited delivery
$175 × 0; 8; 0; 0; 3; 4 0 1,400 0 0 525 700
Restocking
$50 ×3; 2; 0; 0; 1; 5 150 100 0 0 50 250
Visits to customers 125 125 125 125 125 125
Sales commissions
$10× 10; 20; 9; 12; 24; 36 100 200 90 120 240 360
Total customer-level operating 1,182 3,341 1,065 799 2,638 4,045
Customer-level operating income $1,338 $ 2,419 $2,475$ 521 $ 1,622 $ 8,075
 3. Customer level operating income based on actual order costs:
Customers
AC DC MC JC RC BC
Revenues
$30 × 225; 520; 295; 110; 390; 1,050 $6,750 $15,600 $8,850 $3,300 $11,700 $31,500
Less: Returns
$30 ×15; 40; 0; 0; 35; 40 450 1,200 0 0 1,050 1,200
Net Revenues
$30 ×210; 480; 295; 110; 355; 1,010 6,300 14,400 8,850 3,300 10,650 30,300
Cost of goods sold
$18 × 210; 480; 295; 110; 355; 1,010 3,780 8,640 5,310 1,980 6,390 18,180
Gross margin 2,520 5,760 3,540 1,320 4,260 12,120
Customer-level operating
Order taking
$8 ×10; $15 × 20; $8 × 9; $8 × 12; $8
× 24; $8 × 36 80 300 72 96 192 288
Product handling
$1 × 225; 520; 295; 110; 390; 1,050 225 520 295 110 390 1,050
Delivery
$1.20 × 360; 580; 350; 220; 790; 850 432 696 420 264 948 1,020
Expedited delivery
$175 × 0; 8; 0; 0; 3; 4 0 1,400 0 0 525 700
Restocking
$50 ×3; 2; 0; 0; 1; 5 150 100 0 0 50 250
Visits to customers 125 125 125 125 125 125
Sales commissions
$10× 10; 20; 9; 12; 24; 36 100 200 90 120 240 360
Total customer-level operating 1,112 3,341 1,002 715 2,470 3,793
Customer-level operating income $1,408 $ 2,419 $2,538$ 605 $ 1,790 $ 8,327

Comparing the answers in requirements 2 and 3, it appears that operating income is higher than
expected, so the management of KC Corporation would be very pleased with the performance of
the salespeople for reducing order costs. Except for DC, all of the customers are more profitable
than originally reported.