Recalculate the customer-level operating income using the number of written orders but at their actual $8 cost per order instead of $15 (except for DC, whose actual cost is $15

Recalculate the customer-level operating income using the number of written orders but at their actual $8 cost per order instead of $15 (except for DC, whose actual cost is $15 per order). How will KC Corporation evaluate customer-level operating cost performance this period? Transcribed Image Text: Customer profitability and ethics. KC Corporation manufactures an air-freshening device called
GoodAir, which it sells to six merchandising firms. The list price of a GoodAir is $30, and the full manufactur-
ing costs are $18. Salespeople receive a commission on sales, but the commission is based on number of
orders taken, not on sales revenue generated or number of units sold. Salespeople receive a commission of
$10 per order (in addition to regular salary).
KC Corporation makes products based on anticipated demand. KC carries an inventory of GoodAir, so
rush orders do not result in any extra manufacturing costs over and above the $18 per unit KC ships finished
product to the customer at no additional charge for either regular or expedited delivery. KC incurs signifi-
cantly higher costs for expedited deliveries than for regular deliveries. Customers occasionally return ship-
ments to KC, and the company subtracts these returns from gross revenue. The customers are not charged
a restocking fee for returns.
Budgeted (expected) customer-level cost driver rates are:
$15 per order
S1 per unit
Order taking (excluding sales commission)
Product handling
Delivery
Expedited (rush) delivery
Restocking
$1.20 per mile driven
S175 per shipment
$50 per returned shipment
$125 per customer
Visits to customers
Because salespeople are paid $10 per order, they often break up large orders into multiple smaller orders.
This practice reduces the actual order-taking cost by $7 per smaller order (from $15 per order to $8 per
order) because the smaller orders are all written at the same time. This lower cost rate is not included in
budgeted rates because salespeople create smaller orders without telling management or the accounting
department. All other actual costs are the same as budgeted costs.
Information about KC’s clients follows:
AC
DC
MC
JC
RC
BC
Total number of units purchased
225
520
295
110
390
1,050
Number of actual orders
20
4
18
Number of written orders
10
20*
12
24
36
Total number of miles driven to
360
580
350
220
790
850
deliver all products
Total number of units returned
15
40
35
40
Number of returned shipments
Number of expedited deliveries
3
4
* Because DC places 20 separate orders, its order costs are $15 per order. All other orders are multiple
smaller orders and so have actual order costs of $8 each.

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