The Darwin Company has recently adopted customer profitability analysis. It has undertaken a customer profitability review for the past 12 months. Details of the activities and the cost driver rates relating to those expenses that can be attributed to customers are as follows:
|
Activity |
Cost driver rate |
|
Sales order processing |
£300 per sales order |
|
Sales visits |
£200 per sales visit |
|
Normal delivery costs |
£1 per delivery kilometre travelled |
|
Special (urgent) deliveries |
£500 per special delivery |
|
Credit collection costs |
10% per annum on average payment time |
Details relating to four of the firm’s customers are as follows:
|
Customer |
A |
B |
Y |
Z |
|
Number of sales orders |
200 |
100 |
50 |
30 |
|
Number of sales visits |
20 |
10 |
5 |
5 |
|
Kilometres per delivery |
300 |
200 |
100 |
50 |
|
Number of deliveries |
100 |
50 |
25 |
25 |
|
Total delivery kilometres |
30 000 |
10 000 |
2 500 |
1250 |
|
Special (urgent deliveries) |
20 |
5 |
0 |
0 |
|
Average collection period |
90 |
30 |
10 |
10 |
|
(days) |
||||
|
Annual sales |
£1 million |
£1 million |
£0.5 million |
£2 million |
|
Annual operating profit |
£90 000 |
£120 000 |
£70 000 |
£200 000 |
|
contribution |