Heimlich would like to cull the customer base but must figure out HOW to get rid...

 

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Heimlich would like to cull the customer base but must figure out HOW to get rid of the poorer performing customers. OPTION 1 is to provide poor service to these customers. Unfortunately, doing so tends to result in a poor reputation which may spill over to other customers. In addition, there is no guarantee that the poor performing customers will go away. OPTION 2 is to raise prices. Assume: Our worst performing customer ordered 5,793 units last year Last year profits from this customer totaled ($17,465), that is, we lost $17,465 by serving the customer • $4.02 unit price • $3.95 unit variable cost • $14.35 hourly wage 48% corporate tax rate • $41.83 cost to fill an order (regardless of how many units are in that order) • Everything else (order quantity and order frequency) stays the same. We assume the customer's order quantity will be the same this year. WHAT PRICE (PER UNIT) WOULD HEIMLICH HAVE TO CHARGE THIS CUSTOMER in order to break-even? Heimlich would like to cull the customer base but must figure out HOW to get rid of the poorer performing customers. OPTION 1 is to provide poor service to these customers. Unfortunately, doing so tends to result in a poor reputation which may spill over to other customers. In addition, there is no guarantee that the poor performing customers will go away. OPTION 2 is to raise prices. Assume: Our worst performing customer ordered 5,793 units last year Last year profits from this customer totaled ($17,465), that is, we lost $17,465 by serving the customer • $4.02 unit price • $3.95 unit variable cost • $14.35 hourly wage 48% corporate tax rate • $41.83 cost to fill an order (regardless of how many units are in that order) • Everything else (order quantity and order frequency) stays the same. We assume the customer's order quantity will be the same this year. WHAT PRICE (PER UNIT) WOULD HEIMLICH HAVE TO CHARGE THIS CUSTOMER in order to break-even?