Time Solutions, Inc. is an employment services firm that places both temporary and permanent workers with a variety of clients. Temporary placements account for 70% of Time Solutions' revenue; permanent placements provide the remaining 30%. President Gia Johnson recently read an article that discussed the need to consider selling and administrative costs in determining customer profitability-a practice that Time Solutions does not follow.

Johnson is concerned that the company may be making poor choices in the selection of customers.

In the temporary market, Time Solutions advertises and searches for workers, hires them, and pays them for the hours they work. The company then bills customers for an amount that is higher than the workers' pay plus taxes. Because the temporary market is very competitive, Time Solutions has had to reduce the rates charged to customers to keep their business.

After reviewing the year's operations, Johnson has determined that the company's customer service activities for the temporary business could be divided into three cost pools:

filling work orders, hiring temporary employees, and processing payroll/billing customers.

The following table shows the three cost pools and their annual capacity:

Time Solutions' largest four customers account for about 42% of total sales, so Johnson has decided to analyze those customers' accounts first to determine how much they are contributing to the bottom line. The gross margin the companies generate and the activities they use are as follows:

Required

a. Calculate the gross margin percentage for each customer.
b. Determine the activity rates for each of the three cost pools.
c. Determine the customer net profit and customer prof t margin for each customer.
d. What suggestions would you make for managing each customer'sprofitability?

Cost Pool Total Cost Filling work orders Hiring temporary employees Processing payroll/billing customers Annual Capacity 3,500 orders 2,950 applicants $175,875 $ 81,125 43,000 215,000 hours worked Chemical Company Manufacturer Nepaer Publisher Food Processor $466,733 $145,764 $122,604 $167,327 Sales Cost of sales 341,620 65,366 406,986 59,747 110,473 24,350 134,823 $10,941 56 48 15,115 92,205 18,621 110,826 11,778 928 794 13,000 120,451 23,411 143,862 23,465 332 284 22,765 ages Taxes and fees Total cost of sales Gross margin Temps ordered Applicants Hours worked 74 47,370