Figure 18-1
The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers:
The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.
The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.
The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle
Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing
$0.25 per case. Bad debt expense averages 10% of sales.
-Refer to Figure 18-1. What customer type is the most profitable ?

Question

Figure 18-1
The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers:
  The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.
The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.
The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle
Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing
$0.25 per case. Bad debt expense averages 10% of sales.
-Refer to Figure 18-1. What customer type is the most profitable ?

Quizplus · Accepted Answer

The supermarket chains are the most profitable customer type as they require only electronic ordering which incurs a cost of $25,000 annually, and there are no extra handling, marketing or commission costs associated with them.

Figure 18-1 The Lancashire Corporation Manufactures Bottled Water with an Average Manufacturing