Customer profitability in a manufacturing firm. Antelope Manufacturing makes a component called A1030. This component is manufactured only when ordered by a customer, so Antelope keeps 12000no inventory of A1030. The list price is $114.

per unit, but customers who place large orders receive a 12% discount on price. The customers are manufacturing firms. 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 10. If the component needs to be exchanged or repaired, customers can come back within 10 days for free exchange or repair.

The full cost of manufacturing a unit of A1030 is $95. In addition, Antelope incurs customer-level costs. Customer-level activity costs and the respective cost drivers are:

Order Taking (per order) $40,320

Product Handling (per case) 31,350

Rush Order Processing (per rush order) 7,280

Exchange and Repair Costs (per unit repaired) 9,0091

Information About Antelopes five biggest customer follows:

Instructions:

1. Using the activity base costing find the customer-level cost-driver rates.

2. Calculate the customer-level operating income for these five customers. Prepare a customer-profitability analysis by ranking the customers from most to least profitable.

3. Discuss the results of your customer-profitability analysis. Does Antelope have unprofitable customers? Is there anything Antelope should do differently with its five customers?

4. Prepare a whale curve (Use an excel spread sheet and follow directions provided in IN PRACTICE page 248 of your textbook). What percentage of total profits did the most profitable 20% of the customers generate? What percentage of total profits did the least profitable 20% of the customers lose for the company?