12-A2 Customer Profitability The following table gives sales, product cost, and
ID: 2515775 • Letter: 1
Question
12-A2 Customer Profitability
The following table gives sales, product cost, and cost-to-serve data for a company that makes three product lines: A, B, and C. The company has two customer types.
The cost to serve all customers is $12,000 and is allocated to customer types based on the number of manager visits to customer locations for pre- and post-sales support.
1. Determine the gross profit margin percentage of sales for each product. Which product is the most profitable?
2. Determine the gross profit margin and the gross profit margin percentage of sales for each customer type.
3. Determine the cost-to-serve percentage of sales for each customer type.
4. Determine the operating income and operating income percentage of sales for each customer type.
5. Which customer is the most profitable based the following profitability measures:
a. Grossmargin
b. Gross margin percentage of sales
c. Operating income
d. Operating income percentage of sales
PRODUCT A PRODUCT B PRODUCT C Sales $5,000 $6,000 $25,000 Cost of Sales 4,500 4,800 15,000 Customer Type 1 Customer Type 2 Customer Type 3 Product A Sales $500 $4,500 $5,000 Product B Sales 1,000 5,000 6,000 Product C Sales 13,000 12,000 25,000 Manager Visits 4 16 20Explanation / Answer
Assumption: Cost of sales (product cost) does not include Cost to serve.
Customer Type 3 is a printing mistake as two customer types are mentioned in the question.
1.
Gross profit margin percentage of sales for each product
Gross Profit margin percentage of sales
(Gross Profit*100/Sales)=(c*100/a)
Product C is most profitable as per the Gross Profit margin percentage of sales.
2.
Gross profit margin and gross profit margin percentage of sales for each customer type.
500+1,000+13,000
=14.500
4,500+5,000+12,000
=21,500
Gross Profit margin percentage of sales
(Gross Profit*100/Total Sales)
5,450*100/14,500
=37.58%
6,250*100/21,500
=29.07%
3.
Cost to serve percentage of sales for each customer type
12,000*4/20
=2,400
12000*16/20
=9,600
2,400*100/14,500
=16.55%
9,600*100/21,500
=44.65%
4.
Operating income and operating income percentage of sales for each customer type
Operating income percentage of sales
(Operating income*100/ Total Sales from Part 2)
3,050*100/14,500
=21.03%
(3,350)*100/21500
=(15.58%)
5.
Most profitable customer as per following profitability measures:
a. Gross Margin:- Customer Type 2 as per part 2 (Gross profit $6,250)
b. Gross Margin percentage of sales:- Customer Type 1 as per part 2 (Gross profit percentage of sales 37.58%)
c. Operating income:- Customer Type 1 as per part 4 (Operating income $3,050)
d. Operating income percentage of sales:- Customer Type 1 as per part 4 (Operating income percentage of sales 21.03%)
Product A B C Sales (a) 5,000 6,000 25,000 Product cost (b) 4,500 4,800 15,000 Gross Profit ((a-b)=c) 500 1,200 10,000Gross Profit margin percentage of sales
(Gross Profit*100/Sales)=(c*100/a)
10% 20% 40%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.