Questions:
Customer profitability, distribution. Spring Distribution has decided to analyze the profitability of five new customers (see pp. 510-517). It buys bottled water at $12 per case and sells to retail customers at a list price of $14.40 per case. Data pertaining to the five customers are as follows:
|
P
|
Q
|
R
|
S
|
T
|
|
Cases sold
|
2,080
|
8,750
|
60,800
|
31,800
|
3,900
|
|
List selling price
|
$14.40
|
$14.40
|
$14.40
|
$14.40
|
$14.40
|
|
Actual selling price
|
$14.40
|
$14.16
|
$13.20
|
$13.92
|
$12.96
|
|
Number of purchase orders
|
15
|
25
|
30
|
25
|
30
|
|
Number of customer visits
|
2
|
3
|
6
|
2
|
3
|
|
Number of deliveries
|
10
|
30
|
60
|
40
|
20
|
|
Miles traveled per delivery
|
14
|
4
|
3
|
8
|
40
|
|
Number of expedited deliveries
|
0
|
0
|
0
|
0
|
1
|
Its five activities and their cost drivers are as follows:
|
Activity
|
Cost Driver Rate
|
|
Order taking
|
$100 per purchase order
|
|
Customer visits
|
$80 per customer visit
|
|
Deliveries
|
$2 per delivery mile traveled
|
|
Product handling
|
$0.50 per case sold
|
|
Expedited deliveries
|
$300 per expedited delivery
|
1. Compute the customer-level operating income of each of the five retail customers now being examined (P, Q, R, S, and T). Comment on the results.
2. What insights are gained by reporting both the list selling price and the actual selling price for each customer?
3. What factors should Spring Distribution consider in deciding whether to drop one or more of the five customers?