ABC, wholesale, customer profitability. Villeagas Wholesalers operates at capacity and sells furniture items to tour department-store chains (customers). Mr. Villeagas commented, “We apply ABC to determine product-line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well.” Villeagas Wholesalers sends catalogs to corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a six-month period from the purchase date and receive a full purchase price refund. The following data were collected from last year’s operations:

Villeagas has calculated the following activity rates.

Customers pay the transportation costs. The cost of goods sold averages 80% of sales.

Determine the contribution to profit from each chain last year. Comment on your solution.

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Chain 3 Gross sales Sales returns: Number of items Amount Number of orders: Regular Rush $100,000 $70,000 $50,000 $30,000 26 40 100 60 $ 7,000 $ 5,000 $ 6,000 $10,000 40 150 50 50 10 70 30 10