Edward Ltd. manufactures weighing machines of standard size and sells its products to two industrial customers namely MT Ltd. and KG Ltd. and to a…

CA Intermediate · Cost and Management Accounting · RTP · January 2026
Edward Ltd. manufactures weighing machines of standard size and sells its products to two industrial customers namely MT Ltd. and KG Ltd. and to a dealer MG Bros. having shops in different cities. The maximum retail price per unit of weighing machine is 11,000 and per unit average cost of production is 5,500 (40% is general fixed overhead cost). The Finance Officer has been asked to undertake a customer profitability analysis and calculate and compare the profit margin per customer (before deducting general fixed overhead) to know about the real customer profitability. Following are the additional overhead information: Delivery costs 200 per kilometer Emergency delivery cost (in addition to delivery cost) 21,000 per delivery Order processing cost 6,000 per order Specific discount and sales commission As per negotiation Product Advertisement cost Actual cost The following data are available for each customer. MT Ltd. KG Ltd. MG Bros. Sales (in units) 2,000 1,000 800 Total delivery kilometer travelled 1,000 800 900 No. of emergency delivery 2 1 0 No. of orders processed 4 2 8 Specific Discount (percentage of sales revenue) 25% 20% 15% Sales commission (percentage of sales revenue) 15% 10% 5% Advertisement costs (₹) 8,75,000 6,15,000 4,30,000 You are required to analyse the profitability for each customer, which customer is the most profitable.

Suggested Answer and Working Notes:

Customer Profitability Statement Particulars MT Ltd. (₹) KG Ltd. (₹) MG Bros. (₹) Sales (units) 2,000 1,000 800 Sales Revenue (A) 2,20,00,000 1,10,00,000 88,00,000 Less: Average Variable Cost (B) (₹ 5,500 × 60% = 3,300 p.u.) 66,00,000 33,00,000 26,40,000 Contribution [70%of Sales] (A)-(B) 1,54,00,000 77,00,000 61,60,000 Less: Additional Overheads Delivery Cost (No. of K.M. × ₹ 200) 2,00,000 1,60,000 1,80,000 Emergency Delivery Cost (Emergency Delivery × ₹ 21,000) 42,000 21,000 - Order Processing Cost (No. of Orders × ₹ 6,000) 24,000 12,000 48,000 Specific Discount 55,00,000 22,00,000 13,20,000 Sales Commission 33,00,000 11,00,000 4,40,000 Advertisement Cost 8,75,000 6,15,000 4,30,000 Profit per customer* 54,59,000 35,92,000 37,42,000 Profit Margin per customer* (%) 24.81% 32.65% 42.52% Rank III II I *Before deducting general fixed overhead cost The contribution margin is 70% for each customer but when the other overheads costs per customer is included in the above profitability statement the profitability of the three customers become different. MG Ltd. is the most profitable customer.

Topics: Activity Based Costing

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic