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

Additional costs if order must be expedited (rushed)

Customer technical support calls (per call)

Relationship management costs (per customer per year)

In addition to these costs, product costs amount to 75%

In the prior year, Wizard had the following experience with one of its customers, Chester Company:

Sales

Number of orders

Percent of orders marked rush

Calls to technical support

Required:

Calculate the profitability of the Chester Company account.

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)

$9.50

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%

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

Costs:

1. Order processing cost = 7*160 = $1120

2. Additional costs for expedited orders = 0.7*9.5*160 = $1064

3. Customer technical support cost = 12*80 = $960

4. Relationship Management cost = $1200

5. Product costs = 0.75*16,000 = $12,000

Total Cost = $16,344

Total Sales = $16,000

Loss = $344 -> This is the profitability of the Chester Company account

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