Italian Favorites is the producer of an entire line of canned tomato products. It sells in two segments: retail grocery chains in a 28-ounce can, and a wholesale segment that sells #10 cans of product to various restaurants. The average price for the 28-ounce can to grocery stores is $2.85, and the average price to the wholesaler for the #10 can of tomatoes is $16. In each major segment, Italian Favorites has four customers who make up 80% of its sales with the remaining 20% being much smaller orders. The retail segment’s operating costs are $2,150,000 per year on net assets of $6,500,000. The wholesale segment’s operating costs are $3,500,000 per year on net assets of $8,000,000. The tomato division has operating costs of $3,750,000 on net assets of $18,500,000.

The company has adopted ABC for its customer analysis. The data the company makes available to you is in the table below.

REQUIRED:

a. Do a customer profitability analysis using the ABC data to derive the non materials costs for each customer.

b. Given the results of your customer profitability analysis, complete the segment profitability analyses. This should include an ROA calculation.

c. Given the results of your segment profitability analysis, complete the profitability analysis for the division. This should include an ROA calculation.

d. What does this information tell you about the tomato division? Is it making a sufficient ROA?

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Italian Favorites Customer Profitability Data Retail Segment Wholesale (Restaurant) Segment Totak Irudy's Yagoo Supermarkets Johnson's Godjimes Markets Markets Nuyzio Tomatoes Wholesale International Wholesale Brady's Wholesale Other 20% Jueked Other 20% Mart Revenue S1282,500 SL083000 S16N20 S1282,500 SI70,00 S1632000 S2,60,000 S2,80,00 S,28,000 S4,800,000 SZ3048,250 Raw materials S54,425 ST6A,869 SE09, 88 S82,250 STA4, 12 SĮZ76,800 SI95,328 SZ B8,800 SD,642,400 Orders 3900 5,00 5,820 6,060 7,200 7800 6,600 7200 6,600 3720 60,000 ploced Orders picked/ pocked 4,875 5,625 6000 6,788 8,230 9,000 9,35 8625 5,587 7,000 Orders shipped 6,800 7,200 8,500 8,00 9,00 2,500 1200 5,600 Z800 8,300 0,00 Invoices 8,75 9,375 9,500 1,875 5,625 V,000 B,25 4,000 1875 5,00 sent Calls made 3.500 3250 3600 3,900 5,050 6,250 7,50 6,250 7,500 3,80 S0,000