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 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 $16,000 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 (Amounts in $)

There is a net loss of $288.

Sales 16,000 Less: Cost of goods sold (75% of $16,000) (12,000) Less: Order Processing Cost (160 orders*$7 per order) (1,120) Less: Rush Handling Cost (160 orders*70% orders rushed*$9.00) (1,008) Less: Customer Service Cost (80 calls*$12 per call) (960) Less: Relationship Management Costs (1,200) Net Profit/(Loss) (288)

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