The following table shows the 2020 revenues from three customers of a manufacturer. The sales staff has permission to grant discounts on the list price of $500 per unit if customers place large orders. The reason is that order handling is an expensive activity for the manufacturer with a total cost pool for this activity of $2,550,000. The handling cost per order (activity rate) is $3,000. The unit product cost (i.e., what it costs to manufacture one unit) is $250.

	Customer A	Customer B	Customer C
Units sold	20,000	15,000	3,000
Average order size	40	100	15
List price	$500	$500	$500
Price discount given	$50	$30	$100
Invoice price	$450	$470	$400
Net revenues	$9,000,000	$7,050,000	$1,200,000
Number of orders	500	150
Total order handling cost	$1,500,000
Total product cost		$3,750,000	$750,000
Customer-level op. income

Determine the customer-level operating income for the three customers. Some of the cells from the missing rows (number of orders, order handling cost, product cost) that are necessary to compute the customer-level operating income are already completed.

Evaluate the following recommendations for the manufacturer above. How should they deal with customers A, B, and C? Check all recommendations that you agree with.

		They should work with Customer B to make sure Customer B really deserves the discount that they already receive.
		They should talk to the sales representative for Customer C (and potentially re-assign this customer account) because the way the discount is given seems to violate the discount policy.
		They should work with Customer C and figure out whether they find a way to charge them for the frequent orders or convince them to consolidate future orders (for example, impose a minimum order size).
		They do not need to worry about Customer A and the order handling costs caused by them since A returns a solid profit.

Answer rating: 100% (QA)

1 For the first requirement Customer A Customer B Customer C Customer 250000000 285000000 15000000 Level Operating Income 2 For the second requirement I agree with Letter A B and D Stepbystep explanat... View the full answer