48. The Current Contribution Margin Ratio for Picture This (rounded) is
49. If Picture This desires a return on sales of 25%, costs must be reduced by:
50. Current return on sales (rounded) for Large Frames is
51. Current return on sales (rounded) for Small Frames is
52. Current return on sales for Gift Shops is
53. Current return on sales for Discount Stores is
54. The objectives of customer profitability analysis include
55. When globe manufacturer Power Company discovered that their third largest customer type – elementary
schools has a ROS of (10%) they decided to keep elementary schools as customers. Which of the following
would be legitimate reasons to keep elementary schools as customers?
56. Common size financial statements
57. Davidson’sIndustries makes chocolate candy bars in many shapes. Davidson‘s current Return on Sales is
15%. Davidson desires a profit of 20%. Assuming their product costs are $1,500,000 and they believe they can
maintain sales of $2,500,000 to achieve their target profit, they must
58. Gammon Industries wishes to increase its ROS to 20%. Their current Return on Sales is 15% and they
believe that sales are fixed at $750,000. To achieve their target profit they can
Use the following to answer questions 59-61:
Calumet Inc is investigating its phone ordering costs and hoping to trace those costs to each of its three
customer types, individuals, book stores and internet sales. Calumet uses in-house phone service for regular
hours questions and orders and an outside source for weekend evening phone service.
Hilton – Chapter 06
59. Calumet‘s phone costs (rounded) for Individual Customers are
60. Calumet‘s phone costs (rounded) for Internet customers are
61. If Calumet believes the contribution margin on Internet customers is insufficient to cover the phone service
costs and other related customer costs. An appropriate response would be:
62. In determining customer profitability, it is important to include:
63. When an unprofitable customer is discovered, managers may want to keep the customer but
64. The following items would be shown separately on a Customer Profitability Statement
65. A customer profitability analysis reveals a favorite customer of management is not profitable. The company
should consider
66. In a small grocery store, customer profit information should include information regarding
67. Great Chocolates sells two types of candy – bars and gift boxes to two types of customers – airlines and gift
shops:
Required:
1) Using the information above, prepare a customer profitability statement in absolute dollar amounts.
2) Using the information above prepare a common-size profit statement.
3) Management believes it is important to maintain the airline customers. They believe much of their gift shop
demand is a result of airline passengers tasting the candy. Therefore, they do not want to drop the airlines as
customers. Using the information above, what can Great Chocolates do to improve profitability?
4) Management believes it is important to maintain the airline customers. They believe much of their gift ship
demand is a result of airline passengers tasting the candy. Therefore, they do not want to drop the airlines as
customers. Assuming the operating costs are fixed, how much would sales of bars to the airline customers need
to increase in order for Great Chocolates to achieve a break-even return on sales for the Airlines.
5) Management believes it is important to maintain the airline customers. They believe much of their gift shop
demand is a result of airline passengers tasting the candy. Therefore, they do not want to drop the airlines as
customers. Assuming the operating costs are fixed, how much would sales of gift boxes to the airline customers
need to increase in order for Great Chocolates to achieve a break–even return on sales for the airlines.
6) Assume Great Chocolates desires a 40% return on sales. What level of profit enhancement is required to
meet his profitability target at the same level of sales?
68. A rather large candy company is attempting to determine the profitability of each of their customers. They
are applying activity based costing methods to their overhead costs for marketing administrative, collection and
customer service cost. Determine the amount of overhead allocated to the customers below using activity based
costing to allocate the overhead.
The Overhead costs and related cost drivers are as follows:
Sales and Cost of Goods Sold are:
Required:
1) Compute the amount of overhead allocated to Customers X, Y, and Z
2) Compute the profitability of Customers X, Y, and Z
(Put your answers on the chart below. Show your work.)
Overhead Allocated to:
69. Briefly describe what is meant by customer profitability analysis and why it is important.
70. What is the relationship between customer profitability analysis and ABC?
71. Ms. Jorgenson, the Marketing Vice President of Gardner, Inc. noticed in a recent meeting that while the
company was doing very well, its marketing expenses had been increasing over the last couple of years. She
started asking questions of her salespeople and others in the department to see if they had any clues as to what
was happening. Mr. Haynes, one of her top salespeople, came to her a couple of days after she started asking
questions with some information about two of his customers. “Look at these figures. These are some of our best
customers in terms of sales but they have been demanding more and more from us in the way of customer
services. There should be a way of analyzing the use of customer services by customers or customer classes to
see where the problems are and what we can do about them. ”
Required: Prepare a report for Ms. Jorgenson, explaining to her about customer profitability analysis in very
general terms.
72. Ms Meyer, the Marketing Vice President of Lockwood, Inc. noticed in a recent meeting that while the
company was doing very well, its marketing expenses had been increasing over the last couple of years. She
started asking questions of her salespeople and others in the department to see if they had any clues as to what
was happening.
Mr. Williams, one of her top salespeople, came to her a couple of days after she started asking questions with
some information about two of his customers. “Look at these figures. These are some of our best customers in
terms of sales but they have been demanding more and more from us in the way of customer services. There
should be a way of analyzing the use of customer services by customers or customer classes to see where the
problems are and what we can do about them. “
Required: Prepare a report for Ms. Meyer, explaining customer profitability analysis and its relationship to
ABC.
73. Greeley, Inc. is in the talking stages of developing a new product. The marketing, production, and R&D
members of the development team start talking about the various costs that will arise and when they will arise
and how there will be times they will overlap and by the end of the discussion, nothing is settled other than a bit
of confusion. Ms. Manson, the team member from marketing, knowing about the product life cycle from a
marketing standpoint, wonders if this is a similar issue and contacts a professor at the local university to get
more information.
Required: You are the professor. Answer Ms. Manson’s request in simple terms.
74. Audio for You, an on-line provider of audio services, believes their toll-free Help Line costs are having a
negative impact on profit.
How could customer profitability analysis help management?