Customer profitability in a manufacturing firm. Bizzan Manufacturing makes a compo- nent they call P14-31. This component is manufactured only when ordered by a customer, so Bizzan keeps no inventory of P14-31. The list price is $100 per unit, but customers who place "large" orders receive a 10% discount on price. Currently, the salespeople decide whether an order is large enough to qualify for the discount. When the product is finished, it is packed in cases of 10. When a customer order is not a multiple of 10, Bizzan uses a full case to pack the partial amount left over (e.g., if Customer C orders 25 units, three cases will be required). Customers pick up the order so Bizzan incurs costs of holding the product in the warehouse until customer pickup. The customers are manufacturing firms; if the compo- nent needs to be exchanged or repaired, customers can come back within 10 days for free exchange or repair. The full cost of manufacturing a unit of P14-31 is $80. In addition, Bizzan incurs customer-level costs. Customer-level cost-driver rates are:

REQUIRED 1. Calculate the customer-level operating income for these five customers. Use the format in Exhibit 16-7. Prepare a customer profitability analysis by ranking the customers from most to least profitable, as in Exhibit 16-9.
2. Discuss the results of your customer profitability analysis. Does Bizzan have unprofitable customers? Is there anything Bizzan should do differently with its five customers?LO1

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Order taking Product handling Warehousing (holding finished product) Rush order processing Exchange and repair costs $380 per order $ 10 per case $ 55 per day $520 per rush order $ 40 per unit