1. Create a new Profit by Customer Report like the Exhibit 1 Customer Profitability

2. What you would do regarding the 4 customers listed

Johnson Beverage sell to Retail store customers - about 20 customers Last year Revenue was $12 million - Sell Sport Drinks (Exhibit 1 Customer Profitability) Saver Oscars Superstore Odd Lots Net Revenue $1,168,000 $1,192,000 Cost of Goods Sold 1,048,000 1,048,000 Gross Profit 120,000 144,000 Customer Service Costs 116,800 119,200 Customer Profit 3,200 24,800 Profit % 0.3% 2.1% Midwellon $121,520 104,800 16,720 12,152 4,568 3.8% Downtown Retail $454,500 393,000 61,500 45,450 16,050 3.5% Others $9,063,980 7,886,200 1,177,780 906,398 271,382 3.0% Total JBI $12,000,000 10,480,000 1,520,000 1,200,000 320,000 2.7% List price is $15.20 per case Cost is $13.10 per case Discounts vary by customer (Exhibit 2 Customer information) Saver Oscars Superstore Odd Lots Price per Case $ 14.60 $ 14.90 Number of Cases 80,000 80,000 Number of Orders 16 40 Number of Deliveries 110 400 Miles per Delivery 5 19 Expedited Deliveries 10 250 Sales Visits 12 25 Midwellon $ 15.19 8,000 20 200 11 130 18 Downtown Retail $ 15.15 30,000 30 230 Others $ 15.06 602,000 394 3,540 Total JBI $ 15.00 800,000 500 4,480 10 2,500 360 44800 4 90 2,020 296 9 Customer Saver Superstore is not happy - they think they are paying too much Customer Service Cost Detail In addition to COGS Johnson has Customer Service costs of $1.2 million per year - like overhead See Table 1 Currently allocated based on % of revenue Product Handling Taking Orders from Customers Delivering the Product Expediting Deliveries Sales visits Total Cost $ 672,000 100,000 140,000 198,000 90,000 $ 1,200,000 They Run a report of Profitability by Customer See Exhibit 1 Can you help them using Activity Based costing