Figure Four is a distributor of pharmaceutical products. Its ABC system has five activities:
Activity Area Cost Driver Rate in 2013
1. Order processing...... $40 per order
2. Line-item ordering...... $ 3 per line item
3. Store deliveries...... $50 per store delivery
4. Carton deliveries...... $ 1 per carton
5. Shelf-stocking...... $16 per stocking-hour
Rick Flair, the controller of Figure Four, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and pop single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August 2013 are as follows:

REQUIRED
1. Use the ABC information to compute the operating income of each customer in August
2013. Comment on the results and what, if anything, Flair should do.
2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top
20% of customers is $55,680. Figure Four reports operating losses of $21,247 for the bottom 40% of its customers. Make four recommendations that you think Figure Four should consider in light of this new customer profitability information.

Transcribed Image Text:

Charlesville Pharmacy Chapelville Pharmacy Total orders 13 10 18 10 20 Average line items per orde Total store deliveries Average cartons shipped per store delivery Average hours of shelf-stockin per store delivery Average revenue per delivery Average cost of goods sold per delivery S2,400 S2,100 0.5 S1,800 S1,650