Clark corporation manufactures cooling system components

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Reference no: EM13587951

Clark Corporation manufactures cooling system components. The company has gathered the following information about two of its customers: Engle Equipment and Midwest Refrigeration.

Engle Equipment: Sales Revenue $215,000 Cost of goods sold 95,000 General selling costs 30,000 General admin costs 21,000

Midwest Refrigeration: Sales revenue $154,000 cost of goods sold 68,000 general selling costs 21,500 general admin costs 15,050

Cost-driver data used by the firm and traceable to Engle and Midwest are:

Customer Activity Cost Driver Pool Rate

Sales activity Sales visits $900

Order Taking Sales orders 250

Special Handling units handled 30

Special Shipping Shipments 600

Customer Activity Engle Equip. Midwest Refrig.

Sales Activity 8 visits 5 visits

Order taking 17 orders 22 orders

Special handling 600 units 550 units

Special shipping 19 shipments 30 shipments

Required:
A. Perform a customer profitability analysis for Clark. Compute the gross margin and operating income on transactions related to Engle Equipment and Midwest Refrigeration.

B. Compute gross margin as a percentage of sales revenue. Then compute (1) general selling and administrative costs as a percentage of gross margin and (2) total customer-related costs (i.e., costs that arise from sales visits, order taking, and special handling and shipping) as a percentage of gross margin.

C. On the basis of your calculations, which of the two customers is "more costly" to deal with? Briefly explain.

Reference no: EM13587951

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