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Drug Inc. is a distributor of pharmaceutical products for pharmacies. Drug Inc. has always used a 6% markup on the cost of goods sold to

Drug Inc. is a distributor of pharmaceutical products for pharmacies. Drug Inc. has always used a 6% markup on the cost of goods sold to determine the selling prices. 

Laura McConnel, the CEO, noted that profitability has been declining in the last few years. Laura suggested implementing an ABC system to help improve understanding of customer profitability. The relevant common selling and administrative expenses are as shown below:   

Activity Cost Pool 

Activity Measure 

Total Cost 

Total Activities 

Manual order processing

Number of manual orders 

$  100,000 

1,600 orders 

Electronic order processing

Number of electronic orders 

$ 50,000 

7,500 orders 

Customer deliveries

Number of deliveries 

$ 300,000 

3,000 deliveries 

Line item picking

Number of line items picked 

$ 40,000 

2,000 line items 

Data on two customers have been gathered: Westside Pharmacy and Southside Pharmacy. Sales for both pharmacies were $39,200 in the year 2019.   

Activity Measure 

Westside 

Southside 

Number of manual orders

- 

20 

Number of electronic orders

10 

- 

Number of deliveries

5 

9 

Number of line items picked

20 

45 

Determine the customer margin for Westside and Southside using ABC costing and for your recommendations on how to increase company profitability.

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