Patricia Company makes three types of products.The company has two types of customers.The cost to serve all customers is $12,000 and is allocated to customer types based on the number of manager visits to customer locations.The following data are available: What is the gross profit margin for all three products for Customer Type 2?
A)$450
B)$1,000
C)$7,000
D)$8,450

Question

Patricia Company makes three types of products.The company has two types of customers.The cost to serve all customers is $12,000 and is allocated to customer types based on the number of manager visits to customer locations.The following data are available:   What is the gross profit margin for all three products for Customer Type 2?
A)$450 
B)$1,000 
C)$7,000 
D)$8,450

Quizplus · Accepted Answer

We need to use the data in the table to calculate the gross profit margin for all three products for Customer Type 2. The gross profit margin is calculated as revenue minus cost of goods sold, divided by revenue. We can use the following formula to calculate this:

Gross profit margin = (Revenue - Cost of goods sold)/Revenue

To calculate revenue for each product for Customer Type 2, we multiply the number of units sold by the price per unit. We can find this information in the table. For example, for Product A, Customer Type 2, the revenue is:

Revenue = 150 x 50 = $7,500

We can do the same calculation for the other two products:

Product B, Customer Type 2: Revenue = 80 x 75 = $6,000
Product C, Customer Type 2: Revenue = 200 x 25 = $5,000

To calculate the cost of goods sold for each product for Customer Type 2, we need to allocate the total cost of serving all customers based on the number of manager visits to each customer type. Again, we can use the data in the table to do this. For example, for Product A, Customer Type 2, the number of manager visits is 4, and the total number of manager visits is 12. Therefore, the cost of goods sold for Product A, Customer Type 2 is:

Cost of goods sold = 12,000 x (4/12) = $4,000

We can do the same calculation for the other two products:

Product B, Customer Type 2: Cost of goods sold = 12,000 x (3/12) = $3,000
Product C, Customer Type 2: Cost of goods sold = 12,000 x (5/12) = $5,000

Now we can substitute the revenue and cost of goods sold values into the formula for gross profit margin and calculate it for each product:

Product A, Customer Type 2:
Gross profit margin = (7,500 - 4,000)/7,500 = 0.467

Product B, Customer Type 2:
Gross profit margin = (6,000 - 3,000)/6,000 = 0.5

Product C, Customer Type 2:
Gross profit margin = (5,000 - 5,000)/5,000 = 0

The question asks for the gross profit margin for all three products combined, so we need to add up the revenues and cost of goods sold for all three products, and then use those values to calculate the overall gross profit margin. In this case, the calculation is:

Total revenue = 7,500 + 6,000 + 5,000 = $18,500
Total cost of goods sold = 4,000 + 3,000 + 5,000 = $12,000

Overall gross profit margin = (18,500 - 12,000)/18,500 = 0.352

Therefore, the answer is D) $8,450.

Patricia Company Makes Three Types of Products