Customer profitability, distribution. (40 minutes) Spring Distribution has decided to analyse the profitability of another five customers (see pp.

398-403 of the text). It buys bottled water at EUR 0.50 per bottle and sells to wholesale customers at a list price of EUR 0.60 per bottle. Data pertaining to five customers are:

REQUIRED 1. Calculate the operating profit of each of the five customers now being examined (P,Q,R,S andT). 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 orT?

Transcribed Image Text:

CUSTOMER P Q R S T Bottles sold 50,000 210,000 1,460,000 764,000 94,000 List selling price EUR 0.60 EUR 0.60 EUR 0.60 EUR 0.60 EUR 0.60 Actual selling price EUR 0.60 EUR 0.59 EUR 0.55 EUR 0.58 EUR 0.54 Number of purchase orders 15 25 30 25 30 Number of sales visits 2 4 6 2 3 Number of deliveries 10 30 60 40 20 Kilometres travelled per delivery 14 3 8 40 Number of hot-hot runs 0 0 0 0 1 Its five activity areas and their cost drivers are: ACTIVITY AREA Order taking Sales visits Delivery vehicles Product handling 'Hot-hot runs' COST DRIVER AND RATE EUR 100 per purchase order EUR 80 per sales visit EUR 2 per delivery kilometre travelled EUR 0.02 per bottle sold EUR 300 per hot-hot run