At the Little Shop of Pants they make and sell four types of men's pants: superior, first class, regular, and economy. Every type is made in a fair assortment of sizes and colors, which are adjusted every year in response to the trends in society. They have never really worried about profitability, but recently Mr Carling, the CEO and one of the main owners, attended a management training program in Lausanne, Switzerland. There, he learned that you have to know your costs and so he asked the shop accountant to produce a summary statement, describing the profitability of each type of pants. In table below you will see the information Mr Carling received in response to his request. While he was quite happy with the overall situation, he felt that maybe it would be a good idea to get rid of those economy pants once and for all. When considering them, he felt that they did not really match his quality standards and now he could see that they did not even make a profit. So, maybe he felt, it would be a good thing to stop producing economy pants?

Summary statement for Little Shop of Pants Superior First class Regular Economy Totals Direct labor $210 $300 $240 $150 $900 Direct material 240 300 180 180 900 Other direct costs 300 300 180 120 900 Total direct costs 750 900 600 450 2700 Allocated fixed costs 375 450 300 225 1350 Full cost 1125 1350 900 675 4050 Sales income 1650 1400 1150 600 4800 Total profit (loss) 525 50 250 75 750

Additional Information: 1. Company presently allocate fixed costs in proportion to total direct costs

2. Fixed costs are separated into two main pools:

a. Automatic sewing $600

b. Administration $750

Automatic sewing takes place in proportion to direct material and that machine capacity is 12,000 hours. Right now, only 9000 hours are actually used for ongoing production and there are

3. 3000 hours left idle. Administration managers feel that their efforts are proportional to the number of product types. They could probably take on another type without a rise in fixed costs

give a brief customer profitability analysis report for the firm; highlighting revenues and costs differences across customers and the importance of customer-profitability profiles.

analysis must focus following aspects:

Adding/Dropping of customers

Likelihood of customer retention.

Potential for sales growth.

Long-term/short-term customer profitability.

Increases in overall demand from more profitable customers

Ability to learn from customers