Olivia Pharmaceutical manufactures and distributes Rodri, a patented drug that is very effective forblood clots. Currently the company only has four customers: two drug distributors - East Jamie andWest Kaleb, and two local pharmacies - Mars and Park. Pharmaceutical industry is heavily regulated,and the government had decided on a maximum retail price (MRP) for Rodri. The MRP of Rodgi wasset at $9,600 per box of 10,000 capsules, while the full production cost is $6,650 per box. OliviaPharmaceuticalalloweditssalesforcetogivediscountstoincreasenumberofquantitysold.

TheCompanyiscurrentlyanalyzingtheprofitabilityofitscustomersusingthefollowingactivity-basedcostinginformationandmostrecentannualcostinformation.

Customer-RelatedActivities	CostDriverBase	Cost ofActivity($)
RegularDeliveryCost	Numberofregularshipments	870,000
OvernightDeliveryCost	Numberofovernightshipments	975,000
OrderProcessingCost	Numberofsalesorder	735,000
CostofSalesVisits	Numberofcustomervisits	562,500
TotalCustomer-RelatedActivityCosts	3,142,500

Cost-driverandotherdataforthefourcustomersforthemostrecentyearare:

Customer-RelatedActivities	CostDriverBase	Distributors	LocalPharmacies
EastJamie	West Caleb	Mars	Park
RegularDeliveryCost	Numberofregularshipments	31	65	31	18
OvernightDeliveryCost	Numberofovernightshipments	30	9	14	12
OrderProcessingCost	Numberofsalesorder	61	74	45	30
CostofSalesVisits	Numberofcustomervisits	23	20	20	12
QuantitySold(inboxes)	2,275	3,660	1,010	975
PercentageDiscountGivenbySalesPeople	8.50%	7.75%	7.50%	1.90%
GeneralSellingCosts(in$)	2,184,000	3,513,600	969,600	936,000
GeneralAdminCosts(in$)	1,638,000	2,635,200	727,200	702,000

Required:

1. PrepareacustomerprofitabilityanalysisforthefourcustomersofOliviaPharmaceuticalsandcalculatetherateofCustomerLevelOperatingIncometoGrossRevenue(13%).
2. IfyouarethemanagementofOliviaPharmaceuticals,basedontheresultfromRequirement1,whatisyourresponseforeachof thecustomer?(6%)
3. IfOliviaPharmaceuticalshastargeteda2.5%CustomerLevelOperatingIncomepercustomerfromgrossrevenue;whatisthemaximumpercentageofdiscountallowedpercustomer?(6%)