Question
Lynnwood Ltd. is reviewing two of its customers using ABC analysis. It has identified the following customer related activities and their rates: Activity Cost Driver
Lynnwood Ltd. is reviewing two of its customers using ABC analysis. It has identified the following customer related activities and their rates:
Activity | Cost Driver | Rate |
Sales | # of visits | $450 |
Order processing | # of orders | $125 |
Product handling | # of units | $12 |
Special shipping | # of shipments | $500 |
The company has the following information regarding Crowe Ltd. and Donald Inc.:
Activity | Crowe Ltd. | Donald Inc. |
# of visits | 20 | 6 |
# of orders | 42 | 37 |
Product handling | 740 | 400 |
Special shipping | 14 | 11 |
Sales for Crowe and Donald are $300,000 and $250,000 respectively. The cost of goods sold on these sales are the same at 58%.
Required:
- Using Customer ABC Analysis, calculate the profitability of Crowe and Donald.
- Provide your comments to Lynnwood with respect to the profitability of these two customers.
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