Question

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
expand button
Transcribed Image Text: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
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
expand button
Transcribed Image Text: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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