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:

Required

1. Customers pay the transportation costs. The cost of goods sold averages 80% of sales. Determine the contribution to profit from each chain last year.
2. Comment on your solution to requirement 1.

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Gross sales Sales returns: Number of items Amount Number of orders: Regular Rush 1 $50,000 100 $10,000 40 10 Chain 2 $30,000 26 $5,000 150 50 3 $100,000 60 $ 7,000 50 10 4 $70,000 40 $ 6,000 70 30