3. HQ Drugs Inc. is a distributor of pharmaceutical products. Its ABC system has five activities: 1(Click the icon to view the activities.) Rick Flair, the controller of HQ Drugs, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and-pop single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August 2018 are as follows: 2(Click the icon to view the customers' data.) Required Requirement 1. Use the ABC information to compute the operating income of each customer in August 2018. Comment on the results and what, if anything, Flair should do. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for operating losses.) Revenues Cost of goods sold Gross margin Cachet Lundar Pharmacy Pharmacy Operating costs Operating income (loss) (1) has a lower gross margin percentage and consumes (2). resources to obtain this lower margin. Requirement 2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $64,050. HQ Drugs reports operating losses of $25,820 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer profitability information. Ways HQ Drugs could use this information include the following: 1. Pay (3). attention to the top 20% of the customers. 2. Work out ways internally at HQ Drugs to (4). 3. Work with customers so that their behaviour (5) 4. Offer salespeople bonuses based on the (6) the rate per cost driver. the total "system-wide" costs. of each customer rather than the gross margin of each customer. 1: Activities 2: Customers' data Activity Area 1. Order processing 2. Line-item ordering 3. Store deliveries 4. Carton deliveries 55. Shelf-stocking Cost Driver Rate in 2018 $41 per order $4 per line item $54 per store delivery $5 per carton $18 per stocking-hour Cachet Pharmacy Lundar Pharmacy Total orders 17 9 Average line items per order Total store deliveries Average cartons shipped per store delivery 12 15 4 7 19 22 Average hours of shelf-stocking per store delivery Average revenue per delivery 0.25 0.5 2,400 $ 1,950 Average cost of goods sold per delivery 2,000 $ 1,500 1. Use the ABC information to compute the operating income of each customer in August 2018. Comment on the results and what, if anything, Flair should do. 2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $64,050. HQ Drugs reports operating losses of $25,820 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer profitability information. 3: Required (1) Lundar Pharmacy (2) O Cachet Pharmacy 00 less (3) more reduce decreased (4) increase (5) increases increased (6) cost of goods sold reduces operating income revenues