Spring Distribution has decided to analyse the profitability of another five customers (see pages 363-9 of the text). It buys bottled water at ‚¬0.50 per bottle and sells to wholesale customers at a list price of ‚¬0.60 per bottle. Data pertaining to five customers are:

Its five activity areas and their cost drivers are:
Activity area Cost driver and rate
Order taking.......................‚¬100 per purchase order
Sales visits.................................‚¬80 per sales visit
Delivery vehicles....‚¬2 per delivery kilometre travelled
Product handling.......................‚¬0.02 per bottle sold
Expedited deliveries........‚¬300 per expedited delivery
Required
1. Calculate the operating profit of each of the five customers now being examined (P, Q, R, S and T). Comment on the results.
2. What insights are gained by reporting both the list selling price and the actual selling price for each customer?
3. What factors should Spring Distribution consider in deciding whether to drop one or more of customers P, Q, R, S or T?

Transcribed Image Text:

Customer Bottles sold List selling price Actual selling price Number of purchase orders Number of sales visits Number of deliveries Kilometres travelled per delivery Number of expedited deliveries 50000 210 000 1460 000 764 000 94 000 0.60 0.54 0.60 0.60 15 0.60 0.60 0.55 0.60 0.58 10 14 20 0 0 0