UTAH CORPORATION is analyzing the profitability of five new customers.  The company purchases widgets at an average cost of $12 per unit and has a list price to retail customers of $14.40.  Data regarding these 5 customers is as follows for the current period:

 

 

				CUSTOMER
				A	B	C	D	E
Units sold				2,080	8,750	60,800	31,800	3,900
List selling price				$14.40	$14.40	$14.40	$14.40	$14.40
Actual selling price				$14.40	$14.16	$13.20	$13.92	$12.96
Number of purchase orders				15	25	30	25	30
Number of customer visits				2	3	6	2	3
Number of deliveries				10	30	60	40	20
Miles traveled per delivery				14	4	3	8	40
Number of expedited deliveries				0	0	0	0	1

 

 

Based on their comprehensive activity study, they have determined the following activity (driver) rates:

 

Order taking		$  100.00	per purchase order
Customer visits		$     80.00	per customer visit
Deliveries		$        2.00	per delivery mile traveled
product handling		$        0.50	per unit sold
Expedited deliveries		$   300.00	per expedited delivery

1. Using an Activity-Based Costing approach, prepare the detailed AND meaningful analysis showing the customer-level operating income for each of the 5 customers listed above.  Be sure to separately show both the Gross Sales and Net Sales for each customer, as well as the customer gross profit before allocated service costs as a separate line item on your analysis.
2. Discuss your conclusions about the profitability of the customers based on your analysis above.
3. What insights might be gained by reporting BOTH the list selling price and the actual selling price for each customer?
4. Besides dropping, are there any other actions that you feel the company can make to improve their profitability?