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