Ramirez Wholesalers operates at capacity and sells furniture items to four department-store chains (customers). Mr. Ramirez 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.” Ramirez 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:

Ramirez has calculated the following activity rates:
Activity Cost-Driver Rate
Regular order processing .........$ 20 per regular order
Rush order processing ..........$100 per rush order
Returned items processing..........$ 10 per item
Catalogs and customer support ......$ 1,000 per customer
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 yoursolution.

  • CreatedMay 14, 2014
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