Reference no: EM132474423

Problem 1 - Customer Profitability Analysis - The Triumph Corporation has analyzed its customer and order handling data for the past year and has determined the following costs:

Order processing cost per order $9

Additional costs if order must be expedited (rushed) $11

Customer technical support calls (per call) $13

Relationship management costs (per customer per year) $1,800

In addition to these costs, product costs amount to 80 percent of sales. In the prior year, Triumph had the following experience with one of its customers, the Julius Company:

Sales $22,000

Number of orders 170

Percent of orders marked rush 80%

Calls to technical support 90

Problem 2 - Activity-based Pricing - Refer to the information in Problem 1. For the coming year, the Triumph Corporation has told the Julius Company that it will be switched to an activity-based pricing system or it will be dropped as a customer. In addition to regular prices, Julius will be required to pay:

Order processing (per order) $11

Additional handling costs if order marked rush (per order) $20

Technical support calls (per call) $21

REQUIRED -

a. Calculate the profitability of the Julius Company account if activity is the same as in the prior year.

b. Is it realistic to expect Julius's activity to be the same this year as the previous year if activity-based pricing is instituted? How might the Julius Company react to the new pricing scheme? How might its order behavior change as a result of the new fees?