Hernandez 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 operating income for all three products for Customer Type 1?
A)$2,400
B)$5,850
C)$8,250
D)$9,600

Question

Hernandez 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 operating income for all three products for Customer Type 1?
A)$2,400 
B)$5,850 
C)$8,250 
D)$9,600

Quizplus · Accepted Answer

To find the operating income for all three products for Customer Type 1, we need to allocate the total cost of $12,000 based on the number of manager visits to each customer type. From the table, we know that Customer Type 1 has 6 manager visits out of a total of 12, which means that half of the total cost will be allocated to this customer type. Thus, the cost allocated to Customer Type 1 is $6,000.

To calculate the operating income for all three products, we need to subtract the cost of goods sold (COGS) from the revenue for each product. From the table, we have the following information:

- Product A: $15,000 revenue, $8,000 COGS
- Product B: $10,000 revenue, $4,000 COGS
- Product C: $5,000 revenue, $2,000 COGS

Using these figures, we can calculate the operating income for each product:

- Product A: $15,000 - $8,000 = $7,000
- Product B: $10,000 - $4,000 = $6,000
- Product C: $5,000 - $2,000 = $3,000

Finally, we can add up the operating income for all three products to get the total operating income for Customer Type 1:

$7,000 + $6,000 + $3,000 = $16,000

However, we need to adjust this figure to account for the cost allocated to Customer Type 1. So the final operating income for all three products for Customer Type 1 is:

$16,000 - $6,000 = $10,000

Therefore, the best choice is B, with an operating income of $10,000 for all three products for Customer Type 1.

Hernandez Company Makes Three Types of Products