Kingston Company produces precision components. Kingston has 11 customers, one of which accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Kingston's customer activity follow:
$$\begin{array} { l c r }
&&\text { Ten Small }\
& \text { Large Customer } & { \text { Customern } } \
\text { Units purchased } & 300,000 & 200,000 \
\text { Orders placed } & 12 & 420 \
\text { Number of sales calls } & 20 & 230 \
\text { Manufacturing cost } & \$ 900,000 & \$ 600,000
\end{array}$$
Order-filling costs for Kingston Company total $360,000, and sales-force costs are $300,000.
Required:
a. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers based on sales volume.
b. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

Question

Kingston Company produces precision components. Kingston has 11 customers, one of which accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Kingston's customer activity follow:
 $$\begin{array} { l c r } 
&&\text { Ten Small }\
& \text { Large Customer } & { \text { Customern } } \
\text { Units purchased } & 300,000 & 200,000 \
\text { Orders placed } & 12 & 420 \
\text { Number of sales calls } & 20 & 230 \
\text { Manufacturing cost } & \$ 900,000 & \$ 600,000
\end{array}$$ 
Order-filling costs for Kingston Company total $360,000, and sales-force costs are $300,000.
Required:
a. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers based on sales volume.
b. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

Quizplus · Accepted Answer

The Answer of Kingston Company produces precision components. Kingston has 11 customers, one of which accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Kingston's customer activity follow:
 $$\begin{array} { l c r } 
&&\text { Ten Small }\
& \text { Large Customer } & { \text { Customern } } \
\text { Units purchased } & 300,000 & 200,000 \
\text { Orders placed } & 12 & 420 \
\text { Number of sales calls } & 20 & 230 \
\text { Manufacturing cost } & \$ 900,000 & \$ 600,000
\end{array}$$ 
Order-filling costs for Kingston Company total $360,000, and sales-force costs are $300,000.
Required:
a. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers based on sales volume.
b. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

Kingston Company Produces Precision Components Order-Filling Costs for Kingston Company Total $360,000, and Sales-Force Costs