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Customer Profitability Analysis
Omega Printers Ltd handles printing jobs. Joe Patterson, finds that serving some clients is more demanding than serving others. The demands made by some clients take up a lot of time that the sales staff would prefer to spend on soliciting new clients. In particular, Joe is interested in knowing the profitability of serving Expert Travels - a travel operator and Evon Cosmetics - a retailer. The management accounting department staff of Omega printers have provided the following information.
Expert Travels
Evon Cosmetics
Sales revenue
$554,000
$446,800
Cost of goods sold
$288,000
$223,200
Selling costs
$86,400
$64,800
Administration costs
$68,400
$57,600
Cost driver data used by Omega Printers and traceable to the two clients are:
Customer-driven activities
Cost driver
Cost driver rate
Sales activity
Sales visits
$200 per visit
Order taking
Purchase orders
$ 40 per purchase order
Sorting & packaging
Number of packages
$ 50 per package
Ordinary shipping
Number of shipments
$ 150 per shipment
Special shipping
$ 750 per shipment
The following data relates to those same two clients:
10 sales visits
20 sales visits
15 purchase orders
36 purchase orders
Sorting & Packaging
200 packages
1,500 packages
12 shipments
10 shipments
3 shipments
26 shipments
Required:
1. Prepare a customer profitability analysis for Expert Travels and Evon Cosmetics.
2. Comment on the relative profitability of the two customers by computing the gross margin, net profit margin and any other relevant ratios.
3. Suggest and explain one non-financial performance measure that Omega Printers Ltd could use to evaluate each of the following:
a. Customer acquisition
b. Customer retention
c. Customer satisfaction
During the year, his net share of the corporate taxable income is $11,000. At the end of the year Jeff receives a $15000 distribution. Discuss the tax effects of the distribution.
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