LO 1, 2, 3, 5, 66-27 Customer profitability analysis, original activity-based costing KroneckerCompany, a growing mail-order clothing and accessory company, is concernedabout its growing MSDA expenses. It therefore examined its customer orderingpatterns for the past year and identified four different types of customers, asillustrated in the following table. Kronecker sends catalogs and flyers to all itscustomers several times a year. Orders are taken by mail or over the phone.Kronecker maintains a toll-free number for customers to use when placingorders over the phone. Kronecker prides itself on the personal attention itprovides shoppers who order over the phone. All purchases are paid for bycheck or credit card. Kronecker has a very generous return policy if customersare not satisfied with the merchandise received. Customers must pay returnshipping charges, but their purchase price is then fully refunded.CUSTOMER TYPE 1 CUSTOMER TYrE 2 CUSTCMER TYrE 3 CUSTOMER TYPE 4Initial sales$1,00051,000$2,500$3,000Number of items returned24Dollar value of items returnedS200$500$1,500Number of orders per yearNumber of phone orders per yearTime spent on phone placing ordersNumber of ovemight deliveries1121.120.25 hourI hour12Number of regular deliveriesChapter 6 Measuring and Managing Customer Relationships245s are set so that cost of goods sold is on average about 75% of the sales price. Customers pay actualshipping charges, but extra processing is required for overnight deliveries.Kronecker has developed the following activity cost driver rates for itssupport costs:ACTIVITYACTIVITY COST DRIVER RATEProcess mail orders$5 per orderProcess phone ordersS80 per hour$5 per item retumed$4 per request$50 per yearProcess returnsProcess overnight delivery requestsMaintain customer relations (send catalogs and respondto customer comments or complaints)Required(a) Using activity-based costing, determine the yearly profit associated with each of the fourcustomers described.(b) Comment on which customers are most profitable and why.() What advice do you have for Kronecker regarding managing customer relationships with thedifferent types of customers represented?

Name: LO 1, 2, 3, 5, 66-27 Customer profitability analysis, original activi
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Description: LO 1, 2, 3, 5, 66-27 Customer profitability analysis, original activity-based costing KroneckerCompany, a growing mail-order clothing and accessory company, is concernedabout its growing MSDA expenses. It therefore examined its customer orderingpatt

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LO 1, 2, 3, 5, 6 6-27 Customer profitability analysis, original activity-based costing Kronecker Company, a growing mail-order clothing and accessory company, is concerned about its growing MSDA expenses. It therefore examined its customer ordering patterns for the past year and identified four different types of customers, as illustrated in the following table. Kronecker sends catalogs and flyers to all its customers several times a year. Orders are taken by mail or over the phone. Kronecker maintains a toll-free number for customers to use when placing orders over the phone. Kronecker prides itself on the personal attention it provides shoppers who order over the phone. All purchases are paid for by check or credit card. Kronecker has a very generous return policy if customers are not satisfied with the merchandise received. Customers must pay return shipping charges, but their purchase price is then fully refunded. CustOMEn TYre 1 CusTOMEx TYr 2 CUNTOMER TYP 3 CUSIOMER TYP 4 Initial sales S1,000 51,000 $2,500 $3,000 Number of items returned 24 Dollar value of items returned S200 S500 $1,500 Number of orders per year 12 Number of phone onders per year Time spent on phone placing orders Number of overmight deliveries 12 0.25 hour 1 hour 12 Number of regular deliveries Chapter 6 Measuring and Managing Customer Relationships 245 are set so that cost of goods sold is on average about 75% of the sales price. Customers pay actual shipping charges, but extra processing is required for overnight deliveries. Kronecker has developed the following activity cost driver rates for its support costs: ACTIVITY CoT DHIVIN RATE $5 per order S80 per hour $5 per item retumed $4 per request $50 per year ACTIVITY Process mail orders Process phone orders Process retums Process overnight delivery requests Maintain customer relations (send catalogs and respond to customer comments or complaints) Required (a) Using activity-based costing, determine the yearly profit associated with each of the four customers described. (b) Comment on which customers are most profitable and why. (c) What advice do you have for Kronecker regarding managing customer relationships with the different types of customers represented?