Ippilito's Fresh Meats and Produce Is a Wholesale Distributor That

Essay

Ippilito's Fresh Meats and Produce is a wholesale distributor that operates in central California. An analysis of two of the company's customers, Atriums Retirement Home and Sigma Sigma Fraternity, revealed the data that follow for a recent 12-month period. $\begin{array}{lll}&\text { Atriums}\\&\text { Retirement}&\text { Sigma Sigma}\\&\underline {\text { Home }}\\\text { Sales revenue } & \$ 680,000 & \$ 270,000 \\\text { Cost of goods sold } & 90 \% \text { of sales } & 80 \% \text { of sales } \\\text { Number of deliveries } & 100 & 135 \\\text { Number of invoices } & 120 & 180\end{array}$ Ippilito's uses activity-based costing to determine the cost of servicing its customers. The company had total delivery costs during the year of $576,000 and 8,000 deliveries, along with cost of $765,000 for the administrative processing of 90,000 invoices.
Required:
A. Compute the pool rates for deliveries and invoice processing.
B. Compute the operating income that Ippilito's earned from these two customers.
C. Compute the total of customer-related costs (deliveries and invoice processing) for each customer as a percentage of gross margin, and analyze the results for management. Explain any significant differences that you find.