Brekel Manufacturing makes a component it calls P14-31. This component is manufactured only when ordered by a customer, so Brekel keeps no inventory of P14-31. The list price is $102 per unit, but customers who place "large" orders receive a 5% discount on price. Currently, the salespeople decide whether an order is large enough to qualify for the discount. When the product is finished, it is packed in cases of ten. When a customer order is not a multiple of ten, Brekel uses a full case to pack the partial number of units left over (e.g., if Customer C orders 25 units, three cases will be required). Customers pick up the order, so Brekel incurs costs of holding the product in the warehouse until customer pickup. The customers are manufacturing firms. If the component needs to be exchanged or repaired, customers can come back within ten days for free exchange or repair. The full cost of manufacturing a unit of P14-31 is $87. In addition, Brekel incurs customer-level costs. Customer-level cost-driver rates follow: Information about Brekel's five biggest customers follows: A(Click the icon to view the activities.) Click the icon to view the customer information.) a(Click the icon to view additional information.) A B D E Number of units purchased 5,700 2,700 2.000 4,900 8,400 The salesperson gave Customer Caprice discount because, although Customer C ordered only 2,000 units in total, 12 orders (one per month) were placed. The salesperson wanted to reward customer C for repeat business. All customers except E ordered units in the same order size. Customer E's order quantity varied, so E got a discount some of the time but not all the time. Discounts given 5 % 0 5 % 0 5 % on half the units 16 21 55 25 21 570 310 150 420 822 Number of orders Number of cases Days in warehouse (total for all orders) Number of rush orders Number of units exchanged/repaired 16 20 0 13 122 Print Done 0 3 0 0 6 0 44 12 30 99 More Info Print Done Activity Cost Driver Rate TOVOITUO Tutor pico $ 420 per order Cost of goods sold Gross margin Order taking Product handling Warehousing (holding finished product) Rush order processing Exchange and repair costs $26.00 per case $ 80 per day $ 525 per rush order Customer-level costs Order taking $ 55 per unit A B D E Required Revenue (actual price) Cost of goods sold Gross margin Customer-level costs 1. Calculate the customer-level operating income for these five customers. Prepare a customer profitability analysis by ranking the customers from most to least profitable. 2. Discuss the results of your customer profitability analysis. Does Brekel have unprofitable customers? Is there anything Brekel should differently with its five customers? Order taking Product handling Warehousing Rush order processing Print Done Exchange and repair Customer-level operating income (loss)
