HQ Drugs inc is a distributor of pharmaceutical products. Its ABC system has five activities:

Activity Area

Cost Driver Rate in 2015

1.

Order processing

$38 per order

2.

Line-item ordering

$2 per line item

3.

Store deliveries

$48 per store delivery

4.

Carton deliveries

$3 per carton

55.

Shelf-stocking

$13 per stocking-hour

Rick Flair, the controller of HQ Drugs,wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and-pop single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August

2015 are asfollows:

	Baltimore	Shilo
	Pharmacy	Pharmacy
Total orders	16	11
Average line items per order	9	19
Total store deliveries	6	9
Average cartons shipped per store delivery	23	20
Average hours of shelf-stocking per store delivery	0	0.75
Average revenue per delivery	$2,400	$1,850
Average cost of goods sold per delivery	$2,050	$1,500

Requirement 1. Use the ABC information to compute the operating income of each customer in August

20152015.

Comment on the results and what, ifanything, Flair should do. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for operating losses.)

	Baltimore
	Pharmacy
Revenues
Cost of goods sold
Gross margin
Operating costs
Operating income (loss)