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 Sales.

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

Sales

Number of orders

Percent 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 Sales.

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

Sales

$15,500

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

Calculation of profitability of the Chester Company account Sales $15,500 Less : Costs - Product Cost (75% of sale value) $11,625 - Order processing cost (160 orders * $7 per order) $1,120 - Additional cost for rush orders (160 *70%*$9) $1,008 - Customer technical support cost (80 calls * $12 per call) $960 - Relationship management cost $1,200 Total Cost $15,913 Profitability -$413

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