Customer2341,83031,2001,950Cases sold6,78044,500$26$26$26$26$26List selling priceActual selling price$26$25.20$24.30$25.80$23.90Number of purchase orders1018351635Number of customer visits3512412Number of deliveries1228652535Miles traveled per delivery14645Number of expedited deliveries ActivityCost Driver Rate$90 per purchase order$75 per customer visit$3 per delivery mile traveled$1.20 per case sold$250 per expedited deliveryOrder takingCustomer visitsDeliveriesProduct handlingExpedited deliveries

Question
Asked Jan 24, 2020
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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:

  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.
  2. What insights do managers gain by reporting both the list selling price and the actual selling price for each customer?
  3. What factors should managers consider in deciding whether to drop one or more of the five customers?
Customer
2
3
4
1,830
31,200
1,950
Cases sold
6,780
44,500
$26
$26
$26
$26
$26
List selling price
Actual selling price
$26
$25.20
$24.30
$25.80
$23.90
Number of purchase orders
10
18
35
16
35
Number of customer visits
3
5
12
4
12
Number of deliveries
12
28
65
25
35
Miles traveled per delivery
14
6
45
Number of expedited deliveries
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Customer 2 3 4 1,830 31,200 1,950 Cases sold 6,780 44,500 $26 $26 $26 $26 $26 List selling price Actual selling price $26 $25.20 $24.30 $25.80 $23.90 Number of purchase orders 10 18 35 16 35 Number of customer visits 3 5 12 4 12 Number of deliveries 12 28 65 25 35 Miles traveled per delivery 14 6 45 Number of expedited deliveries

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

Image Transcriptionclose

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

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Expert Answer

Step 1

Customer Profitability Analysis: 

Customer profitability analysis is the process of ascertaining the amount of revenue earned from the customers and the cost incurred by the company to earn that revenue.

The company can do this analysis to see whether the product is profitable or not.

Step 2

1.

Statement that shows the calculation of customer level operating income is,

Accounting homework question answer, step 2, image 1
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Step 3
Accounting homework question answer, step 3, image 1
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