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 $7

Additional costs if order must be expedited (rushed) $8.00

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 Sales.

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

Sales $15,000

Number of orders 160

Percent of orders marked rush 70%

Calls to technical support 80

Required: Calculate the profitability of the Chester Company account.

Explanation / Answer

Amt. Sales $15,000 Less: Product costs $11,250 Less: Order processing costs 160*$7 $1,120 Less: Additional costs for expedited orders $8*160*0.70 $896 Less: Customer technical support calls cost 12*80 $960 Less: Relationship management costs $1,200 Net profit/(Loss) -$426

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