Blue Vibrance Company sells a product used in many manufacturing processes. The sales activity involves three activity areas: $\begin{array}{ll}
\text { Activity Area } & \text { Cost Driver and Rate } \
\text { Order taking } & \$ 100 \text { per purchase order } \
\text { Sales visits } & \$ 50 \text { per visit } \
\text { Delivery vehicles } & \$ 1 \text { per delivery mile }
\end{array}$
The following customer information is given: $\begin{array}{lrr}&\mathrm{AX} & \mathrm{BY} & \mathrm{DZ}\
\text { Units sold } & 100,000 & 80,000&60,000 \
\text { List price } & \$ 50 & \$ 50&\$50 \
\text { Actual sal es price } & \$ 45 & \$ 48 &\$50\
\text { Number of purchase orders } & 30 & 20 &10\
\text { Number of sales visits } & 6 & 5&3 \
\text { Number of delivery miles } & 100 & 80&60
\end{array}$
Which customer is most profitable?

Question

Quizplus · Accepted Answer

AX has the highest profit margin, which is calculated as (Actual sales price - Cost of sales) / Actual sales price. The cost of sales is calculated as the sum of the costs of the three activity areas, which are: Order taking: $100 * 30 = $3,000 Sales visits: $50 * 6 = $300 Delivery vehicles: $1 * 100 = $100 Therefore, the cost of sales for AX is $3,400. The profit margin for AX is ($45 - $3,400) / $45 = 0.9222, which is the highest among the three customers.

Blue Vibrance Company Sells a Product Used in Many Manufacturing