Calculate net profit using ABC
Sharma plc makes one standard product for which it charges the same basic price of $20 a unit, though discounts are allowed to certain customers. The business is in the process of carrying out a profitability analysis of all of its customers during the financial year just ended.
Information about Lopez Limited, one of Sharma’s customers, is as follows:
Discount on sales price 5%
Number of products sold 40,000 units
Manufacturing cost $12
Number of sales orders 22
Number of deliveries 22
Distance travelled to deliver 120 kilometres
Number of sales visits from Sharma’s staff 30
Sharma uses an activity-based approach to ascribing costs to customers as follows:
Cost pool Cost driver Rate
Order handling Number of orders $75/ order
Delivery costs Kilometres travelled $1.50 a kilometre
Customer sales visits Number of visits $230 a visit
Lopez usually takes two months credit, of which the cost to Sharma is estimated at 2 per cent per month.
Required
Calculate the net profit that Sharma plc derived from sales to Lopez Ltd during last year
