Customer profitability, distribution. Green Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $20 per case and sells to retail customers at a list price of $26 per case. Data pertaining to the five customers are:Green Paper Delivery’s five activities and their cost drivers are:Compute the customer-level operating income of each of the five retail customers now being examined (1, 2, 3, 4, and 5). Comment on the results.What insights do managers gain by reporting both the list selling price and the actual selling price for each customer?What factors should managers consider in deciding whether to drop one or more of the five customers? Customer2341,83031,2001,950Cases sold6,78044,500$26$26$26$26$26List selling priceActual selling price$26$25.20$24.30$25.80$23.90Number of purchase orders1018351635Number of customer visits3512412Number of deliveries1228652535Miles traveled per delivery14645Number of expedited deliveries ActivityCost Driver Rate$90 per purchase order$75 per customer visit$3 per delivery mile traveled$1.20 per case sold$250 per expedited deliveryOrder takingCustomer visitsDeliveriesProduct handlingExpedited deliveries

Customer Profitability Analysis: Customer profitability analysis is the process of ascertaining the…

Answered: Customer 2 3 4 1,830 31,200 1,950 Cases…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Customer profitability, distribution. Green Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $20 per case and sells to retail customers at a list price of $26 per case. Data pertaining to the five customers are:

Green Paper Delivery’s five activities and their cost drivers are:

Compute the customer-level operating income of each of the five retail customers now being examined (1, 2, 3, 4, and 5). Comment on the results.
What insights do managers gain by reporting both the list selling price and the actual selling price for each customer?
What factors should managers consider in deciding whether to drop one or more of the five customers?

Customer
2
3
4
1,830
31,200
1,950
Cases sold
6,780
44,500
$26
$26
$26
$26
$26
List selling price
Actual selling price
$26
$25.20
$24.30
$25.80
$23.90
Number of purchase orders
10
18
35
16
35
Number of customer visits
3
5
12
4
12
Number of deliveries
12
28
65
25
35
Miles traveled per delivery
14
6
45
Number of expedited deliveries

Activity
Cost Driver Rate
$90 per purchase order
$75 per customer visit
$3 per delivery mile traveled
$1.20 per case sold
$250 per expedited delivery
Order taking
Customer visits
Deliveries
Product handling
Expedited deliveries

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