Time Solutions, Inc. is an employment services firm that places both temporary a

Question

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 these 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: Calculate the gross margin percentage for each customer. (Round answers to 1 decimal place, e.g. 15.2%.) Determine the activity rates for each of the three cost pools. (Round answers to 2 decimal places, e.g. 15.25.) Determine the customer net profit and customer profit margin for each customer. (Round customer net profit to 0 decimal places, e.g. 125 and customer profit margin to 1 decimal place, e.g. 15.2%. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Explanation / Answer

Chemical Company 62243*100/467545 13.31% Trailer manufacturer 12600*100/146993 8.57% Newspaper Publisher 11261*100/122158 9.22% Food Processor 21121*100/165600 12.75% Cost Pool Total cost Capacity activity rate( Total Cost/ Annual Capacity) Filling work orders 1996725 39500 orders 50.55 per order Hiring Temporary Employees 72540 2600 applicants 27.9 per applicant Food Processor 42800 214000 hours 0.2 per hour

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