This is my question about profitability analysis on 737-738 page by the Garrison chapter 15.

Profitability Analysis 73, Recently, customer representatives have made more frequent complaints that it is impossible to do their jobs without working well beyond normal working hours. This has led to an alarming increase in the number of customer representatives quitting for jobs in other organizations. As a consequence, management is considering dropping some customers to reduce the workload on appears below: customer representatives. Data concerning a representative sample of the company's customers Providence Madison Leafcrest Hospital Clinic Jenkins Pharmacy Pharmacy Pharmacy Pharmacy Total revenues . ...... . . . . . . . .. ... $272,650 $2,948,720 $211,470 $1,454,880 $155,280 Cost of drugs sold . .. ..... . . . . . ... $2,234,480 Customer service costs . . . . .. . . . . . . $10,640 $1, 119,440 $115,920 $74,400 $42,000 $4,480 incremented progra Customer representative time . . .... . 190 1,240 560 80 266 516 524 136 profitability molex Customer service costs include all of the costs-other than the costs of the drugs themselves- Rank based on preyon that could be avoided by dropping the customer. These costs include the hourly wages of the ability indue customer representatives, their sales commissions, the mileage-related costs of the customer repre- sentatives' company-provided vehicles, and so on. Required: 1. Rank the four customers in terms of their profitability. 2. Customer representatives are currently paid $25 per hour plus a commission of 1% of sales revenues. If these four pharmacies are indeed representative of the company's customers, could the company afford to pay its customer representatives more in order to retain them? PROBLEM B-5 Volume Trade-Off Decision; Managing the Constraint [LOB-2, LOB-3] Sammamish Brick, Inc., manufactures bricks using clay deposits on the company's property. Raw clays are blended and then extruded into molds to form unfired bricks. The unfired bricks are then stacked onto movable metal platforms and rolled into the kiln where they are fired until dry. The dried bricks are then packaged and shipped to retail outlets and contractors. The bottleneck in the production process is the kiln, which is available for 2,000 hours per year. Data concerning the company's four main products appear below. Products are sold by the pallet. Traditional Textured Cinder Roman Brick Facing Block Brick Gross revenue per pallet ....... $756 $1,356 $589 $857 Contribution margin per pallet . ... $472 $632 $376 $440 Annual demand (pallets) . .......... 90 110 100 120 Hours required in the kiln per pallet 8 5 No fixed costs could be avoided by modifying how much is produced of any product. Required: 1. Is there sufficient capacity in the kiln to satisfy demand for all products? 2. What is the production plan for the year that would maximize the company's profit? 3. What would be the total contribution margin for the production plan you have proposed? 4. The kiln could be operated for more than 2,000 hours per year by running it after normal working hours. Up to how much per hour should the company be willing to pay in overtime wages, energy costs, and other incremental costs to operate the kiln additional hours? 5. The company is considering introducing a new product. glazed Venetian bricks, whose vari- able cost would be $820 per pallet and that would require 10 hours in the kiln per pallet. What is the minimum acceptable selling price for this new product? 6. Salespersons are currently paid a commission of 5% of gross revenues. Will this motivate the salespersons to make the right choices concerning which products to sell most aggressively? PROBLEM B-6 Interpreting Common Practice [LOB-1] In practice, many organizations measure the relative profitability of their segments by dividing the segments' margins by their revenues. The segment margin for this purpose is the segment's730 Appendix B revenue less its fully allocated costs-including allocations of fixed common costs, For example, a hospital might compute the relative profitability of its major segments as follows: St. Ignatius Hospital Profitability Report (in thousands of dollars) Emergency Room Surgery Acute Care Total Revenue .... . .. .. . . . .. .... .. ...... $10,630 $21,470 $18,840 $50,940 Fully allocated cost . . . . ..... 10,060 21,090 18,560 49,700 Margin . .... $ $ 380 $ 1,240 Profitability (Margin + Revenue) ... 5.4% 1.8% 1.5% 2,4% The hospital's net operating income for this period was $1,240,000. Required: Evaluate the use of the margin, as defined above, in the numerator of the profitability measure. Evaluate the use of revenue in the denominator of the profitability measure. PROBLEM B-7 Ranking Alternatives and Managing with a Constraint [LOB-1, LOB-3] Luxus Baking Company has developed a reputation for producing superb, one of-a-kind wedding cakes in addition to its normal fare of breads and pastries. While the wedding cake business is a major moneymaker, it creates some problems for the bakery's owner, Kari Therau, particularly in June. The company's reputation for wedding cakes is largely based on the skills of Regina Yesterman, who decorates all of the cakes. Unfortunately, last year the company accepted too many cake orders for some June weekends, with the result that Regina was worked to a frazzle and almost quit. To prevent a recurrence, Kari has promised Regina that she will not have to work more than 27 hours in any week to prepare the wedding cakes for the upcoming weekend. (Regina also has other duties at the bakery, so even with the 27-hour limitation, she would be working more than full-time in June.) A number of reservations for wedding cakes for the first weekend in June had already been received from customers by early May. When a customer makes a reservation, Ms. Therau gets enough information concerning the size of the wedding party and the desires of the customer to determine the cake's price, the cost to make it, and the amount of time that Regina will need to spend decorating it. The reservations for the first weekend in June are listed below: Incremental Regina's Time Customer Profit Required (hours) Afonso . . . . . . $ 195 Carloni . . 259 Cullins 105 Frese . . . . 170 Gerst . .. . . . . 117 Jelovich . . . . . 124 4 Klarr .... . . . . 192 6 Melby . .. . . . . 144 4 Rideau . . . . .. . . . . . . 150 Towner .... . . . . . . . 256 Total . .. . . $1,712 50 For example, the Afonso cake would require 5 hours of Regina's time and would generate a profit of $195 for the bakery. Following industry practice, pricing for the cakes is based on their size and standard formulas and does not reflect how much decorating would be required. Required: 1. Ms. Therau feels that she must cancel enough cake reservations to reduce Regina's work- load to the promised level. She knows that customers whose reservations have been cancelled will be disappointed, but she intends to refer all of those customers to an excellent bakery across town. If the sole objective is to maximize the company's total profit, which reservations should be cancelled