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Figure Eight, a distributor of pharmaceutical products. Its ABC system has five activities:

Activity Area		Cost Driver Rate in 2013
1.	Order processing	$39 per order
2.	Line-item ordering	$5 per line item
3.	Store deliveries	$52 per store delivery
4.	Carton deliveries	$2 per carton
55.	Shelf-stocking	$20 per stocking-hour

Rick Flair, the controller of Figure Eight, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the Ma and Pa single-store distribution market. Using only two customers helps highlight the insights available with the ABC approach. Data pertaining to these two customers in August 2013

are as follows:

Millburn Pharmacy			San Diego Pharmacy
Total orders		14			11
Average line items per order		8			18
Total store deliveries		5			11
Average cartons shipped per store delivery		20			21
Average hours of shelf-stocking per store delivery		0			0.25
Average revenue per delivery		$2,350			$1,750
Average cost of goods sold per delivery		$2,250			$1,600

Requirements

Use the ABC information to compute the operating income of each customer in August

2013

1. Comment on the results and what, if anything, Flair should do.
2.	Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $ 60,160

.

Figure Eight reports operating losses of $ 22,410 for the bottom 40% of its customers. Make four recommendations that you think Figure Eight

should consider in light of this new customer-profitability information.

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