Costs of Different Customer Classes

Kaune Food Products Company manufactures canned mixed nuts with an average manufacturing cost of $51 per case (a case contains 24 cans of nuts). Kaune sold 152,000 cases last year to the following three classes of customer:

Customer	Price per Case				Cases Sold
Supermarkets		$60				80,000
Small grocers		96				42,000
Convenience stores		90				30,000

The supermarkets require special labeling on each can costing $0.03 per can. They order through electronic data interchange (EDI), which costs Kaune about $60,000 annually in operating expenses and depreciation. Kaune delivers the nuts to the stores and stocks them on the shelves. This distribution costs $40,000 per year.

The small grocers order in smaller lots that require special picking and packing in the factory; the special handling adds $20 to the cost of each case sold. Sales commissions to the independent jobbers who sell Kaune products to the grocers average 6 percent of sales. Bad debts expense amounts to 7 percent of sales.

Convenience stores also require special handling that costs $29 per case. In addition, Kaune is required to co-pay advertising costs with the convenience stores at a cost of $15,000 per year. Frequent stops are made to each convenience store by Kaune delivery trucks at a cost of $30,000 per year.

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