Customer profitability. Bracelet Delights is a new company that manufactures custom jewelry. Bracelet Delights currently has six customers referenced by customer number: 01, 02, 03, 04, 05, and 06. Besides the costs of making the jewelry, the company has the following activities:Customer orders. The salespeople, designers, and jewelry makers spend time with the customer. The cost-driver rate is $42 per hour spent with a customer.Customer fittings. Before the jewelry piece is completed, the customer may come in to make sure it looks right and fits properly. Cost-driver rate is $30 per hour.Rush orders. Some customers want their jewelry quickly. The cost-driver rate is $90 per rush order.Number of customer return visits. Customers may return jewelry up to 30 days after the pickup of the jewelry to have something refitted or repaired at no charge. The cost-driver rate is $40 per return visit. Information about the six customers follows. Some customers purchased multiple items. The cost of thejewelry is 60% of the selling price.Customer number03$2800501020406Sales revenue$850$4,500$2,200$5,500$650Cost of item(s)Hours spent on customer orderHours on fittings$3,300$510$2,700$168$1,320$390108176Number of rush orders23Number of return visits 1. Calculate the customer-level operating income for each customer. Rank the customers in order of mostto least profitable and prepare a customer-profitability analysis, as in Exhibits 14-3 and 14-4.2. Are any customers unprofitable? What is causing this? What should Bracelet Delights do about thesecustomers?Required

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

Answered: Information about the six customers…

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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Customer profitability. Bracelet Delights is a new company that manufactures custom jewelry. Bracelet Delights currently has six customers referenced by customer number: 01, 02, 03, 04, 05, and 06. Besides the costs of making the jewelry, the company has the following activities:

Customer orders. The salespeople, designers, and jewelry makers spend time with the customer. The cost-driver rate is $42 per hour spent with a customer.
Customer fittings. Before the jewelry piece is completed, the customer may come in to make sure it looks right and fits properly. Cost-driver rate is $30 per hour.
Rush orders. Some customers want their jewelry quickly. The cost-driver rate is $90 per rush order.
Number of customer return visits. Customers may return jewelry up to 30 days after the pickup of the jewelry to have something refitted or repaired at no charge. The cost-driver rate is $40 per return visit.

Information about the six customers follows. Some customers purchased multiple items. The cost of the
jewelry is 60% of the selling price.
Customer number
03
$280
05
01
02
04
06
Sales revenue
$850
$4,500
$2,200
$5,500
$650
Cost of item(s)
Hours spent on customer order
Hours on fittings
$3,300
$510
$2,700
$168
$1,320
$390
10
8
17
6
Number of rush orders
2
3
Number of return visits

1. Calculate the customer-level operating income for each customer. Rank the customers in order of most
to least profitable and prepare a customer-profitability analysis, as in Exhibits 14-3 and 14-4.
2. Are any customers unprofitable? What is causing this? What should Bracelet Delights do about these
customers?
Required

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