Question Two

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	200perpurchaseorder
Sales visits	160pervisit
Delivery	4perdeliverymiletravelled
Product handling	0.004perbottlesold

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)	2,000,0001,600,000140,000120,000

Required: Calculate:

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

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

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