Ackers Ltd. has 3 customers: Bobowler, Ganzy and Donnies. Data relating to sales, transactions and costs for the three customers are:

	Bobowler	Ganzy	Donnies
Sales Revenue	120,000	150,000	90,000
No. of Orders Placed	13	66	39
No. of Units Sold	300	500	450
Warehouse Space Occupied (sq. mtrs.)	30	40	25

Ackers's indirect costs and cost drivers are:

Indirect Cost	Cost Driver	Cost ()
Order Taking	No. of Orders Taken	1534.00
Packing	No. of Units Packed	5250.00
Dispatch	No. of Units Dispatched	4312.50
Warehousing	Cost of Floor Space Occupied by Goods	1007.00
Accounts Admin.	No. of Orders Taken	2242.00

The Gross Profit on Sales is normally 30%. The directly traceable service and support costs (e.g. selling, delivery, financing, discounts etc.) for each customer are:

• Bobowler: 13,120
• Ganzy: 18,476
• Donnies: 13,620

Required

Calculate the Net Profit per customer, and also analyse the following for each customer and comment upon the results:

• Net Profit as a percentage of sales
• Indirect costs as a percentage of sales
• Direct support costs as a percentage of sales

Workshop Example - Q2

Process activity analysis for Collywobbles Ltd

Activity	Annual Cost	Process Driver	Annual number of Process Drivers
Visit of sales representative	450,000	Visit	1800
Delivery of products	700,000	Kilogram-mile	10,000,000
Product modification required by customer	50,000	Modification	25
Order processing	48,000	Order	3,200
Other (phone calls, e-mails etc.)	35,200	Order	3,200

Collywobbles wants to know the relative profitability of its customers. A record of two of its customer (Ayarf and Blart) for the last year shows:

Customer	Sales Revenue ()	Visits	Deliveries (Kg-miles)	Modifications	Orders
Ayarf	594,000	25	950,000	14	104
Blart	571,000	4	300,000	0	12

Product costs are 300,000 for Customer Ayarf, and 298,000 for Customer Blart

Required

1. Analyse the contribution per customer, using an Activity-Based-Costing (ABC) approach.

1. Advise the management of Collywobbles about how they might improve customer profitability

Tutorial question - Q3

The Tackybonk Company has undertaken a customer profitability review for the last year. Activities and cost driver rates are:

Activity	Cost Driver Rate
Sales Order Processing	300 per sales order
Sales Visits	200 per sales visit
Normal Delivery costs	1 per delivery kilometre travelled
Special (urgent) deliveries	500 per special delivery
Credit collection costs	10% per annum on average payment time

Details relating to 4 of Tackybonk's customers are:

Customer	Lampin	Miffed	Nairun	Oppel
Number of sales orders	200	100	50	30
No. of sales visits	20	10	5	5
Kilometres per delivery	300	200	100	50
No. of deliveries	100	50	25	25
Special (urgent) deliveries	20	5	0	0
Average Collection period (days)	90	30	10	10
Annual sales ()	1m	1m	0.5m	2m
Annual Operating profit contribution	90000	120000	70000	200000

Required

Determine the profitability of the four customers.