5-28 ABC, wholesale, customer profitability. Veritek Wholesalers operates at capacity and sells furni- ture items to four department-store chains (customers). Mr. Veritek commented, We apply ABC to deter- mine product-line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well. Veritek Wholesalers sends catalogs to 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 purchase price refund. The following data were collected from last years operations:

Customer 1 2 3 4

Gross Sales: 40,000 20,000 110,000 95,0000

Sales Returns:

Number of items 96 24 64 32

Amount 8,000 3,000 7,700 7,960

Number of orders:

Regular 30 140 55 100

Rush 8 46 12 45

Activity Cost Driver

Regular ordering process $30 per regular order

Rush order process $150 per rush order

Returned items processing $15 per item

Catalogs and customer support $1,200 per customer

Customers pay the transportation costs. The cost of goods sold averages 75% of sales. Determine the contribution to profit from each customer last year. Comment on your solution.