Chapter 14, Problem 14.31P

Customer profitability, distribution. Green Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $20 per case and sells to retail customers at a list price of $26 per case. Data pertaining to the five customers are:

Green Paper Delivery’s five activities and their cost drivers are:

Activity	Cost-Driver Rate
Order taking	$90 per purchase order
Customer visits	$75 per customer visit
Deliveries	$3 per delivery mile traveled
Product handling	$1.20 per case sold
Expedited deliveries	$250 per expedited delivery

1. 1. Compute the customer-level operating income of each of the five retail customers now being examined (1, 2, 3, 4, and 5). Comment on the results.

Required

1. 2. What insights do managers gain by reporting both the list selling price and the actual selling price for each customer?
2. 3. What factors should managers consider in deciding whether to drop one or more of the five customers?