HQ Drugs Inc. is a distributor of pharmaceutical products. Its ABC system has five activities: (Click...

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HQ Drugs Inc. is a distributor of pharmaceutical products. Its ABC system has five activities: (Click the icon to view the activities.) Rick Flair, the controller of HQ Drugs, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and-pop single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August are as follows: (Click the icon to view the customers' data.) Required Requirement 1. Use the ABC information to compute the operating income of each customer in August. Comment on the results and what, if anything, Flair should do. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for operating losses.) Revenues Cost of goods sold Gross margin Banner Pharmacy Chater Pharmacy Required 1. Use the ABC information to compute the operating income of each customer in August. Comment on the results and what, if anything, Flair should do. 2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. HQ Drugs reports operating losses of $21,240 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer profitability information. Customers' data Print I Activities Activity Area 1. Order processing 2. Line-item ordering 3. Store deliveries 4. Carton deliveries 5. Shelf-stocking Cost Driver Rate $45 per order $2 per line item $52 per store delivery $3 per carton $19 per stocking-hour one Operating costs Operating income (loss) has a lower gross margin percentage and consumes resources to obtain this lower margin. Requirement 2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. HQ Drugs reports operating losses of $21,240 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer profitability information. Ways HQ Drugs could use this information include the following: 1. Pay attention to the top 20% of the customers. 2. Work out ways internally at HQ Drugs to the rate per cost driver. 3. Work with customers so that their behaviour 4. Offer salespeople bonuses based on the the total "system-wide" costs. of each customer rather than the gross margin of each customer. Banner Pharmacy Pharmacy Chater rement 2. Flair ranks the individual cus s operating losses of $21,240 for the b HQ Drugs could use this information in attention to the top 20% Total orders 11 12 he cumulative operating inco of this new customer profit= Average line items per order Total store deliveries 9 20 5 10 rk out ways internally at HQ Drugs to Average cartons shipped per store delivery Average hours of shelf-stocking per store delivery 22 18 0.5 0.75 rk with customers so that their behavio Average revenue per delivery $ 2,300 $ 1,750 er salespeople bonuses based on the Average cost of goods sold per delivery $ 2,250 $ 1,600 HQ Drugs Inc. is a distributor of pharmaceutical products. Its ABC system has five activities: (Click the icon to view the activities.) Rick Flair, the controller of HQ Drugs, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and-pop single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August are as follows: (Click the icon to view the customers' data.) Required Requirement 1. Use the ABC information to compute the operating income of each customer in August. Comment on the results and what, if anything, Flair should do. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for operating losses.) Revenues Cost of goods sold Gross margin Banner Pharmacy Chater Pharmacy Required 1. Use the ABC information to compute the operating income of each customer in August. Comment on the results and what, if anything, Flair should do. 2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. HQ Drugs reports operating losses of $21,240 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer profitability information. Customers' data Print I Activities Activity Area 1. Order processing 2. Line-item ordering 3. Store deliveries 4. Carton deliveries 5. Shelf-stocking Cost Driver Rate $45 per order $2 per line item $52 per store delivery $3 per carton $19 per stocking-hour one Operating costs Operating income (loss) has a lower gross margin percentage and consumes resources to obtain this lower margin. Requirement 2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. HQ Drugs reports operating losses of $21,240 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer profitability information. Ways HQ Drugs could use this information include the following: 1. Pay attention to the top 20% of the customers. 2. Work out ways internally at HQ Drugs to the rate per cost driver. 3. Work with customers so that their behaviour 4. Offer salespeople bonuses based on the the total "system-wide" costs. of each customer rather than the gross margin of each customer. Banner Pharmacy Pharmacy Chater rement 2. Flair ranks the individual cus s operating losses of $21,240 for the b HQ Drugs could use this information in attention to the top 20% Total orders 11 12 he cumulative operating inco of this new customer profit= Average line items per order Total store deliveries 9 20 5 10 rk out ways internally at HQ Drugs to Average cartons shipped per store delivery Average hours of shelf-stocking per store delivery 22 18 0.5 0.75 rk with customers so that their behavio Average revenue per delivery $ 2,300 $ 1,750 er salespeople bonuses based on the Average cost of goods sold per delivery $ 2,250 $ 1,600