Problem (2 Daton distribution has decided to analyses the profitability of five

Question

Problem (2 Daton distribution has decided to analyses the profitability of five customers. Daton buys water at $ .50 per bottle and sells to wholesale customers at a list price of$ 0.60 per bottle. Data pertaining to the four customers as follow: 50,000210.0001.460,00094,000 $.60 $.60 Bottle sold List selling price Actual selling price No. of purchase order No, of sales visits No. of delivers Km travelled / delivery No. of hot-hot runs $.60 .59 25 .60 $.55 30 $.60 $.54 30 20 40 30 60 14 Most of Daton activities are classified as batch level activities except those activities that can be considered as unit level activities. Daton's activities and cost driver rates are as follows: Activities Order taking Sales visits Delivery vehicles Product handling Hot-hot runs Cost driver rate $100 / purchase order $80/ sale visit $2 / delivery of Km travelled $0.02/ bottle sold $300 / hot-hot run Required 1. Calculate the gross margin for each of the four customers. 2. Calculate the operating profit for each of the four customers based on Daton's activities 3. Comment on customers' profitability. 4. P has doubled his demand. However, Daton's top management reports show that the maximum capacity of the batch level activities is up to 55.000 units per batch. Calculate P's contribution to Daton profits. 5. Q has approached Daton offering to purchase additional 90,000 bottles at the same price list per bottle without any discount. Given Daton current commitments, Daton's batch level activities maximum capacity is 40,000 bottles. Would Daton accept Q offer? Why? (note that batch capacity can not be divided)

Explanation / Answer

1. Gross margin

$0.60

$0.59

$0.55

$0.54

$0.50

$0.50

$0.50

$0.50

$0.10

$0.09

$0.05

$0.04

2. Operating profit

3.Daton distribution is incurring losses from Customer T whereas highest profits are earned from customer R. Daton should ensure giving more satisfactory services to customer R.

4. If demand of P is doubled, then it requires 100000units but capacity of batch is 55000 units. Thus 2 batches would be considered for calculating costs.

Due to shortage of time , i am unable to solve the question further. This is in accordance with chegg guidelines.

Inconvinience is regretted!! Happy Learning :)

P Q R T Selling Price

$0.60

$0.59

$0.55

$0.54

Purchase cost

$0.50

$0.50

$0.50

$0.50

Gross margin p.u

$0.10

$0.09

$0.05

$0.04

× Bottles sold 50000 210000 1460000 94000 Gross margin (Total) $5000 $18900 $73000 $3760

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.