Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $58,120. Best Drugs reports operating losses of $23,670 for the bottom 40% of its customers. Make four recommendations that you think Best Drugs should consider in light of this new customer-profitability information. Customer profitability, distribution. Best Drugs is a distributor of pharmaceutical products. ItsABC system has five activities:Activity Area1. Order processing2. Line-item orderingCost Driver Rate in 2017$42 per order$5 per line item$47 per store delivery$4 per carton$13 per stocking-hour3. Store deliveries4. Carton deliveries5. Shelf-stockingRick Flair, the controller of Best Drugs, wants to use this ABC system to examine individual customer profit-ability within each distribution market. He focuses first on the Ma and Pa single-store distribution market.Using only two customers helps highlight the insights available with the ABC approach. Data pertaining tothese two customers in August 2017 are as follows:Ann Arbor PharmacySan Diego PharmacyTotal orders13Average line items per order1119Total store deliveries5Average cartons shipped per store deliveryAverage hours of shelf-stocking per store deliveryAverage revenue per deliveryAverage cost of goods sold per delivery21180.50.75$2,600$2,100$1,900$1,700

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

Answered: Customer profitability, distribution.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $58,120. Best Drugs reports operating losses of $23,670 for the bottom 40% of its customers. Make four recommendations that you think Best Drugs should consider in light of this new customer-profitability information.

Customer profitability, distribution. Best Drugs is a distributor of pharmaceutical products. Its
ABC system has five activities:
Activity Area
1. Order processing
2. Line-item ordering
Cost Driver Rate in 2017
$42 per order
$5 per line item
$47 per store delivery
$4 per carton
$13 per stocking-hour
3. Store deliveries
4. Carton deliveries
5. Shelf-stocking
Rick Flair, the controller of Best Drugs, wants to use this ABC system to examine individual customer profit-
ability within each distribution market. He focuses first on the Ma and Pa single-store distribution market.
Using only two customers helps highlight the insights available with the ABC approach. Data pertaining to
these two customers in August 2017 are as follows:
Ann Arbor Pharmacy
San Diego Pharmacy
Total orders
13
Average line items per order
11
19
Total store deliveries
5
Average cartons shipped per store delivery
Average hours of shelf-stocking per store delivery
Average revenue per delivery
Average cost of goods sold per delivery
21
18
0.5
0.75
$2,600
$2,100
$1,900
$1,700

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