Question 4: Managing customers

Five Star is a distributor of pharmaceuticals products. The cost management staffs have just completed a customer probability analysis, at the request of the financial controller, Mr Glen Brown. The following information forms the basis for analysis:

Customer-driven activities	Cost driver rate
Order processing	$40 per order
Line- item ordering store deliveries Carton deliveries	$3 per line item $50 per store deliveries $1 per carton
Shelf-stocking	$16 per stocking hours

Cost driver data for two of Five Star's major customers for September 2019 are as follows:

	Medinova Pharmacy	Popular Pharmacy
Total orders	13	10
Average line items per order	9	18
Total store deliveries	7	10
Average cartoons shipped per store delivery Average hours of Shelf-stocking per store delivery The average revenue per delivery	22 0 $2,400	20 0.5 $1,800
The average cost of goods sold per delivery	$2,100	$1,650

Required:

Question 4.1

Prepare a customer profitability analysis for both Medinova Pharmacy and Popular Pharmacy for March 2021 and comment on the relative profitability of two customers.

Your Answer (Insert rows/columns and expand the space as required):

Question 4.2

The sales manager is considering not selling products to unprofitable customer groups and focusing on profitable customer groups. Do you think strategies outlined by the sales manager could lead to improved profitability? Explain your answer.

Your Answer (expand the space as required):

Question 4.3

Describe some other strategies that could describe could be used to manage unprofitable customer groups and improve company profitability.

Your Answer (expand the space as required):