HQ Drugs is a distributor of pharmaceutical products. Its ABC system has five activities:

Rick Flair, the controller of HQ Drugs, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the Ma and Pa single-store distribution market. Using only two customers helps highlight the insights available with the ABC approach. Data pertaining to these two customers in August 2020 are as follows:

Required

1. Use the ABC information to compute the operating income of each customer in August 2020. Comment on the results and what, if anything, Flair should do.
2. Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. HQ Drugs reports operating losses of $18,290 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer-profitability information.

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Activity Area 1. Order processing 2. Line-item ordering 3. Store deliveries 4. Carton deliveries 5. Shelf-stocking Cost Driver Rate in 2017 $44 per order $ 2 per line item $50 per store delivery $5 per carton $12 per stocking-hour