rofitability) Alpha buys bottled watem se. The data pertain
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer all three
Transcribed Image Text:10. (Customer Profitability) Alpha Limited has decided to analyse the profitability of its five new
customers. It buys bottled water at 90 per case and sells to retail customers at a list price of
108 per case. The data pertaining to five customers are :
Customers
A
C
4,680
* 108
* 108
19,688
* 108
7 106.20
1,36,800
* 108
7 99
71,550
7 108
7 104.40
8,775
7 108
7 97.20
Cases Sold
List Selling Price
Actual Selling Price
Number of Purchase Orders
15
25
30
25
30
Number of Customer Visits
2
3
Number of Deliveries
10
30
60
40
20
Kilometres Travelled per Delivery
Number of Expedited Deliveries
20
10
30
1
Its five activities and their cost drivers are :
Activity
Order taking
Customer visits
Deliveries
Product handling
Expedited deliveries
Cost Driver Rate
* 750 per purchase order
7 600 per customer visit
7 5.75 per delivery Km travelled
7 3.75 per case sold
7 2,250 per expedited delivery
Required:
() Compute the customer-level operating income of each of five retail customers now being
examined (A, B, C, D and E). Comment on the results.
(i) What insights are gained by reporting both the list selling price and the actual selling price
for each customer ?
(ii) What factors Alpha Limited should consider in deciding whether to drop one or more of five
customers ?
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