Wizard Corporation has analyzed their customer and order handling data for the p

Question

Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:

Order processing cost per order

Additional costs if order must be expedited (rushed)

Customer technical support calls (per call)

Relationship management costs (per customer per year)

In addition to these costs, product costs amount to 75% of revenue

In the prior year, Wizard had the following experience with one of its customers, Chester Company:

Sales

Number of orders

Proportion of orders marked rush

Calls to technical support

Required:

Calculate the profitability of the Chester Company account.

Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:

Order processing cost per order

$7

Additional costs if order must be expedited (rushed)

$9.00

Customer technical support calls (per call)

$12

Relationship management costs (per customer per year)

$1200

In addition to these costs, product costs amount to 75% of revenue

In the prior year, Wizard had the following experience with one of its customers, Chester Company:

Sales

$15,000

Number of orders

160

Proportion of orders marked rush

.70

Calls to technical support

80

Required:

Calculate the profitability of the Chester Company account.

Explanation / Answer

Calculation of Profitability Sales 15000 Order processing Cost 160*7 1120 Cost of rushed Orders 160*.7*9 1008 Technical Support 12*80 960 Relationship Management Costs 1200 Profitability 10712 Net profit is $ 10712

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