Strong Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $ $12$ per case and sells to retail customers at a list price of $$$$15\mathrm{.}30$ per case. Data pertaining to the five customers$$ are:

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Strong Paper$$ Delivery's five activities and their cost drivers are as$$ follows:

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Question content area bottom

Part $1$

Requirement $1.$ Compute the$$ customer$-$level operating income of each of the five retail customers now being examined$(1,2,3,4,$ and$5).$ Comment on the results.

Begin by calculating each$$ customer's gross margin. Then calculate the operating income for each customer.$($Complete all input fields. Enter a$"0"$ for any zero balances. Use parentheses or a minus sign for operating$$ losses.$)$

Part $2$

$1$

$2$

$3$

$4$

$5$

Gross margin

Total customer$-$level operating costs

Customer$-$level operating income $($loss$)$

Part $3$

Now comment on the results. $($Enter any currency amounts to the nearest$$ cent, X$.$XX$.)$

Customer

$$

$1$

$2$

$3$

$4$

$5$

is the most profitable$$ customer, despite having a lower unit volume than Customer

$$

$1$

$2$

$3$

$4$

$5$

$.$ One major explanation is that the most profitable customer has a

$$

higher

lower

discount per case than the customer with the higher unit volume.

Part $4$

Customer

is the least profitable, while the smaller Customer

is more profitable. The least profitable customer

receives a

discount per case,

Part $5$

makes

frequent orders, requires

customer visits, and requires

delivery miles than the

smaller customer.

Part $6$

Requirement $2.$ What insights do managers gain by reporting both the list selling price and the actual selling price for each$$ customer?

Separate reporting of both the list selling price and the actual selling price enables Strong Distribution to examine

$$

which activities require different cost driver rates.

which customers have more deliveries.

which customers receive different discounts.

An analysis of this information shows that larger volume customers

$$

don't always

always

get larger discounts.

Part $7$

Requirement $3.$ What factors should managers consider in deciding whether to drop one or more of the five$$ customers? $($Select all that$$ apply.$)$Data table

Data table

$\backslash$table$[[,$Customer$],[,2,c,4,,,,],[$Cases sold,$2,010,8,830,63,400,32,600,2,200,,],[$List selling price,$$15\mathrm{.}30,$$$15\mathrm{.}30,$$$15\mathrm{.}30,$$$15\mathrm{.}30,$$$15\mathrm{.}30,,],[$Actual selling price,$$15\mathrm{.}30,$$$14\mathrm{.}90,$$$13\mathrm{.}40,$$$14\mathrm{.}76,$$$13\mathrm{.}79,,],[$Number of purchase orders,$13,29,40,22,36,,],[$Number of customer visits,$3,1,8,1,4,,],[$Number of deliveries,$15,39,70,31,36,,],[$Miles traveled per delivery,$21,7,9,8,42,,],[$Number of expedited deliveries,$0,0,0,0,3,,]]$

$\backslash$table$[[$Activity$,$Cost Driver Rate$],[$Order taking,$$150$ per purchase order$],[$Customer visits,$$60$ per customer visit$],[$Deliveries$,$$$2$ per delivery mile traveled$],[$Product handling,$$0\mathrm{.}80$ per case sold$],[$Expedited deliveries,$$390$ per expedited delivery$]]$