Chapter 14, Problem 14.30P

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:

1. 1. 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.
2. 2. 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.
3. 3. Rush orders. Some customers want their jewelry quickly. The cost-diver rate is $90 per rush order.
4. 4. 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.

1. 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 Figures 14-3 and 14-4.

Required

1. 2. Are any customers unprofitable? What is causing this? What should Bracelet Delights do about these customers?