Question

The sales manager of children’s clothing manufacturer and wholesaler is analyzing the profitability of two groups of customers. One group consists of small, family owned stores that purchase frequent small orders with very specific types of clothing that may require special handling during the manufacturing process. The other group consists of discount retailers that buy large lots of standard clothing at a standard mix but at lower prices. Recently, the firm has implemented a balanced scorecard and has begun to collect financial and nonfinancial data for each type of customer. The firm is considering whether it would be worthwhile to concentrate on one type of customer as a differentiation strategy. The accountant has gathered the following relevant information for the past month.


Following are the performance measures used to analyze customer benefit by group.
Revenue per customers
Revenue less direct costs per customer
Distribution costs per customer
Number of returns per customer
Change orders per customer
Number of deliveries per customer

REQUIRED
A. Calculate the performance measures for each customer type.
B. What amount of savings in customer costs would be required for the clothing manufacturer to be indifferent to keeping or dropping each one of these customers?
C. Based on the information in part (B), would you recommend a differentiated strategy?
D. Suppose that the estimated incremental set-up costs for each change order are about $200.
What type of customer strategy might be helpful to reduce thesecosts?


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  • CreatedJanuary 26, 2015
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