Cougar Toys is a toy wholesaler supplying to a range of different customers. With concerns about sources of profitability from these different customers, Cougar has embarked on a relatively simple customer analysis exercise. In the first instance, customers have been classified as large, medium or small based essentially on sales volume. The results of this analysis are provided in the following table.

Required

(a) Using the activity analysis data, calculate the profitability of each of the customer groups.

(b) Management is concerned about the consolidation taking place in the industry. They know that going forward, customer relations and the strategic management of customers will be critical. Identify a number of the critical strategic factors that management might want to monitor in addition to the financial profitability analysis.

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Sales in units by customer category Large Medium Small Total $2 500 000 1500 000 $1 600 300 Sales revenue $1 400 900 $5501 200 Cost of sales 880 165 770 495 3 150 660 Gross profit Order filling costs 1 000 000 720 135 630 405 2350540 420 000 Assigned on the basis of number of orders Assigned on the basis of number of deliveries Assigned on sales dollars Assigned on number of deliveries Distribution-related costs 835 000 Marketing/promotion/sales 935 000 Administration-related costs 460 600 Total expenses Profit (loss) $2 650 600 $ 300 060 Cost driver No. of orders received 35 45 80 160 No. of deliveries made 50 63 110 223