Reference no: EM13498419

Customer Profitability Analysis                                     

Omega Printers Ltd handles printing jobs. Joe Patterson, finds that serving some clients is more demanding than serving others. The demands made by some clients take up a lot of time that the sales staff would prefer to spend on soliciting new clients.  In particular, Joe is interested in knowing the profitability of serving Expert Travels - a travel operator and Evon Cosmetics - a retailer. The management accounting department staff of Omega printers have provided the following information.

	Expert Travels	Evon Cosmetics
Sales revenue	$554,000	$446,800
Cost of goods sold	$288,000	$223,200
Selling costs	$86,400	$64,800
Administration costs	$68,400	$57,600

 

Cost driver data used by Omega Printers and traceable to the two clients are:

 

Customer-driven activities	Cost driver	Cost driver rate
Sales activity	Sales visits	$200 per visit
Order taking	Purchase orders	$ 40 per purchase order
Sorting & packaging	Number of packages	$ 50 per package
Ordinary shipping	Number of shipments	$ 150 per shipment
Special shipping	Number of shipments	$ 750 per shipment

The following data relates to those same two clients:

 

Customer-driven activities	Expert Travels	Evon Cosmetics
Sales activity	10 sales visits	20 sales visits
Order taking	15 purchase orders	36 purchase orders
Sorting & Packaging	200 packages	1,500 packages
Ordinary shipping	12 shipments	10 shipments
Special shipping	3 shipments	26 shipments

Required:

1.    Prepare a customer profitability analysis for Expert Travels and Evon Cosmetics.

2.    Comment on the relative profitability of the two customers by computing the gross margin, net profit margin and any other relevant ratios.

3.    Suggest and explain one non-financial performance measure that Omega Printers Ltd could use to evaluate each of the following:

a.    Customer acquisition

b.    Customer retention

c.    Customer satisfaction