Delta Products has determined the following costs: Order processing (per order)

Question

Delta Products has determined the following costs:

Order processing (per order)

$

7

Additional handling costs if order marked rush (per order)

$

12

Customer service calls (per call)

$

13

Relationship management costs (per customer per year)

$

3,700

In addition to these costs, product costs amount to 85 percent of sales. In the prior year, Delta had the following experience with one of its customers, Johnson Brands:

Sales

$54,900

Number of orders

270

Percent of orders marked rush

70%

Calls to customer service

161

Calculate the profitability of the Johnson Brands account. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Profit / (Loss) of the Johnson Brands account        $ __?___

Order processing (per order)

$

7

Additional handling costs if order marked rush (per order)

$

12

Customer service calls (per call)

$

13

Relationship management costs (per customer per year)

$

3,700

Explanation / Answer

Answer:

Income summery- Johnson brand account In$ Sales 54900 Less: Product cost 46665 ($54,900*85%) Less: Order processing cost 1890 (270*$7) Less: Additional handling costs 2268 (270*70%*$12) Less: Customer service costs 2093 (161*$13) Less: Relationship management costs 3700 Profit/(Loss) -1716

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