Reference no: EM132757241
Problem - Star Pharma is a pharmaceutical firm operating in Singapore. It serves two channels: (a) small pharmacy stores and (b) large pharmacy stores. Star Pharma has four customers in total, two of which are small pharmacies (C1 and C2) and the other two are large pharmacies (C3 and C4). Star Pharma uses a discount pricing strategy and prices its products at variable cost plus 25%.
Relevant data for the year 2019 is as follows:
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Particulars
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C1
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C2
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C3
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C4
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Number of orders
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4
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9
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6
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3
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Average order value before discount
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$40,000
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$20,000
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$425,000
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$400,000
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Average discount
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4.5%
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9.5%
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17.5%
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11.5%
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Regular deliveries
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4
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9
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6
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3
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Expedited deliveries
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2
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0
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2
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0
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Other important information:
Variable cost of goods sold amount to 80% of gross sales for each customer.
The general administration cost to small pharmacies for the year 2019 was $20,250 and the general administration cost to serve large pharmacies was $48,375.
The total order processing cost for the year 2019 was $16,500. The cost driver for order processing cost was number of orders.
The total cost for making regular deliveries in the year 2019 was $8,250. The cost driver for regular delivery cost was number of regular deliveries made.
The total cost for expedited deliveries in the year 2019 was $5,000. The cost driver for expedited delivery cost was number of expedited deliveries made.
Required -
(a) Calculate the activity cost driver rates for order processing, regular deliveries and expedited deliveries.
(b) Make a customer profitability statement that shows the contribution and operating profit from each customer and each customer channel.
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