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(Solution) - Ames Wholesalers sells furniture items to four department store chains

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Ames Wholesalers sells furniture items to four department store chains. Sharon Ames commented, "We apply ABC to determine profit line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well." Ames Wholesalers sends catalogues to the corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a six-month period from the purchase date and receive a full purchase price refund. The following data were collected from last year's operations:

Ames has calculated the following activity rates:
Activity Cost Driver Rate
Regular order processing.......................$ 20 per regular order
Rush order processing..............................100 per rush order
Returned items processing..................................20 per item
Catalogues and customer support.................1,000 per customer
Required
Determine the contribution to profit from each chain last year. Cost of goods sold is 80% of net sales. Comment on your solution.

 







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This question was answered on: Jul 11, 2017

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