Problem 3: Customer Protability (gsp) Fresno Food Service prepares packaged food for institutional clients such as hospitals and universities. Pricing is very competitive, as there are only a very few large players in this industry. At the request of the company's vice president of marketing, Fresno's cost management staff has recently completed an activity analysis of customer related costs. After detailed cost pool and activity analysis the staff estimated the following average costs for various customer activities. m Cost per Driver Customerinterface $1,000 Order processing 5400 Special handling and shipping Expedited orders 5 800 Violet, head of marketing for Fresno's key California hospital customers, decided to estimate customer protability by collecting the customer-related activities by hospital. This information is reported below for four of the largest hospitals in Julia's region. LA Hospital SF Hospital SD Hospital SJ Hospital it Sales visits 8 6 24 | s it Orders 30 40 | so | 30 # Expedited activities 10 20 | 40 | 12 For instance, Fresno sales personnel visited the LA hospital eight times, lled 30 purchase orders and 10 special requests (identied as expedited activities - such as a rush order.) 1) Compute customer protability by assigning customer-service costs to the four customers. The revenues and direct costs of the properties (cost of goods sold and sales commissions) are reported below. New estimate and deduct the indirect customer service costs to determine the protability of a customer. 51 Hospital Revenues $200,000 $300,000 $300,000 $400,000 -Cost of Goods Sold 120,000 180,000 180,000 240,000 Gross Profit 80,000 120,000 120,000 160,000 Sales Commissions 20,000 30,000 30,000 40,000 -Customer Sewice Costs _ Customer Profit 2) What did Violet learn about the protability of her key customers? Which hospitals are driving Fresno's prots? How might Julia improve the nancial performance of her territory? 3) ABC procedures were adopted for product costing purposes. Product costing is required for US GAAP because rms must be able to account for their inventory. Is customer protability analysis driven by GAAP, or is it an additional analysis that a manager may want for decision making