=+9-29 KK Customer profitability and ethics OBJECTIVE 10 Orion Ltd manufactures a product called the ‘star’, which it sells to merchandising firms such as International House of Stars (IHoS), Stars-R-Us (SRU), Star Marcus (SM), Star City (SC), Good Stars (GS) and Star-mart (Smart). The list price of a star is $50 and the full manufacturing costs to make a star are $35. Salespeople receive a commission on sales but the commission is based on number of orders taken, not on sales revenue generated or number of units sold. Salespeople receive a commission of $25 per order (in addition to regular salary).

Orion Ltd makes products based on anticipated expected demand. It carries an inventory of stars so rush orders do not result in any extra manufacturing costs over and above the $35 per star. Orion Ltd ships finished product to the customer at no additional charge to the customer for either regular or expedited delivery. Orion Ltd incurs significantly higher costs for expedited deliveries than for regular deliveries. Customers occasionally return shipments to Orion, and these returns are subtracted from gross revenue.

The customers are not charged a restocking fee for returns.

Expected and actual customer-level cost-driver rates are:

Order taking (excluding sales commission) $30 per order Product handling $2 per unit Delivery $0.50 per mile driven Expedited (rush) delivery $325 per shipment Restocking $100 per returned shipment Visits to customers $150 per customer