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 A

dditional costs if order must be expedited (rushed) $9.50

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 $16,000

Number of orders 160

Percent of orders marked rush 70%

Calls to technical support 80

Calculate the profitability of the Chester Company account.

Explanation / Answer

Computing the profitability of the Chester Company account:

There was no profit from the Chester Company account for the year. There was a loss of $ 344. Profit margin = (344) / 16,000 x 100 = -2.15 %

$ $ Sales 16,000 Product costs 12,000 Relationship management 1,200 Order processing cost ( $ 7 x 160) 1,120 Orders rush cost ( $ 9.50 x 160 x 70%) 1,064 Customer technical support ( $ 12 x 80) 960 Total costs 16,344 Profit / (Loss) (344)

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