P2 Kaplan Question Queries

Hi Everyone,

Please see the below question. Do we always remove general admin costs when looking at using customer profitability analysis, the ranking of the customers? When I did this question I included the general admin costs and got the rankings correct but when looking at the answer they completely exclude them with no note/explanation. Is this always the case that we exclude non-directly attributable costs in a key customer analysis?

S Company manufactures accessories for the car industry.

The following annual information regarding three of its key customers is available:
J H K
Gross margin $2,000,000 $3,000,000 $2,500,000
General administration costs $65,000 $110,000 $52,000
Units sold 20,000 32,000 27,500
Orders placed 1,500 1,500 2,000
Sales visits 156 172 208
Invoices raised 3,000 3,000 4,000
The company uses an activity-based costing system and the analysis of customer-related
costs is as follows:
Sales visits: $400 per visit
Order processing: $50 per order placed
Despatch costs: $150 per order placed
Billing and collections raised: $150 per invoice

Using customer profitability analysis, the ranking of the customers would be:

ANSWER:

Gross margin 2,000,000 3,000,000 2,500,000
–––––––– –––––––– ––––––––
Sales visits at $400 62,400 68,800 83,200
Order processing at $50 75,000 75,000 100,000
Despatch at $150 225,000 225,000 300,000
Billing and collection at $150 450,000 450,000 600,000
–––––––– –––––––– ––––––––
Total 812,400 818,800 1,083,200
–––––––– –––––––– ––––––––
Net profit/(loss) per customer 1,187,600 2,181,200 1,416,800
–––––––– –––––––– ––––––––
Ranking 3 1 2