ABC, wholesale, customer profitability. Villeagas Wholesalers sells furniture items to four department-store chains. Mr. Villeagas commented, “We apply ABC to determine profit line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well.” Villeagas Wholesalers sends catalogues to the corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a six-month period from the purchase date and receive a full purchaseprice refund. The following data were collected from last year’s operations:

REQUIRED Determine the contribution to profit from each chain last year. Cost of goods sold is 80% of net sales. Comment on your solution.LO1

Transcribed Image Text:

Chain 1 Chain 2 Chain 3 Chain 4 Gross sales $50,000 $30,000 $100,000 $70,000 Sales returns: Number of items 100 26 60 40 Amount $10,000 $ 5,000 $ 7,000 $ 6,000 Number of orders: Regular 40 , 150 50 Rush 10 50 10 30 70 30 Villeagas has calculated the following activity rates: Activity b Regular order processing Rush order processing Cost-Driver Rate $20 per regular order $100 per rush order Returned items processing $10 per item Catalogues and customer support $1,000 per customer