6.35 - Warehousing costs 1,000, 000 600, 000 400, 000 Total...

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6.35 (40 min) Customer profitability a. Analysis Annual service resources Total Bell Toshi Annual number of orders 5,000 3, 000 2, 000 Average cost of good sold per order $ 4,200 $ 1,800 Price markup 60% 60% Average deliveries per order 5 10 Warehousing costs per year $ 1,000,000 Delivery costs per year $ 6,000,000 General administrative costs $ 2,400,000 Percent of G&A devoted to orders 50% Order percentages 100% 60% 40% Deliveries per year 35, 000 1 5,000 20, 000 Delivery percentages 100% 42.86% 57.14% Sales price per order $6,720 $2,880 Sales $ 25,920,000 $ 20,160,000 $ 5,760,000 Cost of goods sold 16,200, 000 12,60 0,000 3,600, 000 Gross margin 9,720, 000 7,560, 000 2,160, 000 Operating costs Order costs (1/2 of gen. admin. costs) 1,200, 000 720, 000 480, 000 Delivery costs* 6,000, 000 2,57 1,429 3,428, 571
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Unformatted text preview: Warehousing costs 1,000, 000 600, 000 400, 000 Total service and promotion costs* 8,200, 000 3,891, 429 4,308, 571 Customer margins* $ 1,520,000 $ 3,668,571 $ (2,148,571) General administrative costs (untraced) 1,200, 000 Operating profit $ 320,000 *Totals are accurate. Amounts summed to get the totals are rounded to nearest dollar. b. This analysis shows that Toshi is not a profitable customer. Toshi causes disproportionately higher delivery costs. The value of each order by Toshi is lower, yet Toshi requires higher frequency of deliveries. The markup charged does not reflect this greater level of service, so the company should re-evaluate its pricing for TS deliveries or negotiate less frequent deliveries....
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This note was uploaded on 11/25/2010 for the course ACCT 33010 taught by Professor Staff during the Spring '08 term at Kent State.

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6.35 - Warehousing costs 1,000, 000 600, 000 400, 000 Total...

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