Question: ABC, wholesale, customer profitability. Veritek Wholesalers operates at capacity and sells furniture items to four department-store chains (customers). Mr. Veritek commented, "We apply ABC to determine product-line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well." Veritek Wholesalers sends catalogs to corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a six-month period from the purchase date and receive a full purchase price refund. The following data were collected from last year's operations:
Veritek has calculated the following activity rates:
Customers pay the transportation costs. The cost of goods sold averages 75% of sales. Determine the contribution to profit from each customer last year. Comment on your solution.