Question Two ( 30 marks):

Red Devils produces a soft drink which it distributes to a range of retailers. In addition to the costs of producing the product, Red Devils has identied a number of customer-related costs, as shown below.

Activity Cost driver and rate

Order taking 200 per purchase order

Sales visits 160 per visit

Delivery 4 per delivery mile travelled

Product handling 0.004 per bottle sold

Red Devils has collected the following data to facilitate a customer protability analysis for its four largest customers.

Smith Jones Greene Browne

Bottles sold 2,000,000 1,600,000 140,000 120,000

List price 1.20 1.20 1.20 1.20

Actual price paid 1.12 1.18 1.10 1.20

Number of purchase orders 60 50 30 20

Number of sales visits 12 10 8 6

Number of deliveries 120 60 40 30

Miles travelled per delivery 10 24 40 12

Production cost of sales (@ 1

per bottle) 2,000,000 1,600,000 140,000 120,000

Required:

1. Calculate:

Gross prot (% of sales value) for each customer.

Net prot (% of sales value) for each customer.

2. Comment on your results, and say which customer(s) Red Devils would nd most attractive.