Question 3

Question 3 Stylish Ltd is a supplier of corporate flowers and food gift boxes and its customers are mainly large businesses. As a small organisation, they are feeling the effects of Covid and would like to undertake some cost reduction exercises without jeopardising value. As a newly qualified management accountant employed by the firm you identify that Customer Profitability Analysis (CPA) is one technique that may help. You have been provided with the following data relating to three large customers: Customers A B C Sales in units 25,000 75,000 8.000 Sales revenue E37,500 E125,000 $10,000 Contribution E21,375 E71,250 E5,700 Current CS% 57% 57% 57% Data: 1. Distribution Kilometres 2,000 4,500 1,400 2. Emergency deliveries 0 2 5 3. Number of orders taken 13 22 4. Sales visits 3 6 Cost and Revenue Data: 1. Delivery costs are $10 per distribution kilometre 2. Emergency deliveries cost $600 per emergency delivery 3. Ordering costs are estimated at $130 per order taken 4. Sales visit costs are on average $200 per visit Required: a) Using the above data calculate the relative profitability (including profit margin) of each of the three customers A, B and C. b) Draft a report to the Managing Director that assesses the relative profitability of the three customers and recommends actions to improve the overall profitability of the company. Include in your report, your reasoning for your recommendations which should also address any possible undesirable consequences