Suffolk County Community College Operations And Supply Chain Management Assignment Help - Dropping a customer

Question - Dropping a customer, activity-based costing, ethics. Jack Arnoldson is the management accountant
for Valley Restaurant Supply (VRS). Bob Gardner, the VRS sales manager, and Jack are meeting to
discuss the profitability of one of the customers, Franco’s Pizza. Jack hands Bob the following
analysis of Franco’s activity during the last quarter, taken from Valley’s activity-based costing system:
Sales…………………………………………………………………….$15,600
Cost of goods sold (all variable)……………………………………â ...Read More €¦â€¦..9,350
Order processing (25 orders processed at $200 per order)………………..5,000
Delivery (2,500 miles driven at $0.50 per mile)…………………………..1,250
Rush orders (3 rush orders at $110 per rush order)…………………………330
Sales calls (3 sales calls at $100 per call)…………………………………..300
Profits…………………………………………………………………….($ 630)
Bob looks at the report and remarks, ?oI’m glad to see all my hard work is paying off with Franco’s.
Sales have gone up 10% over the previous quarter!??
Jack replies, ?oIncreased sales are great, but I’m worried about Franco’s margin, Bob. W e were
showing a profit with Franco’s at the lower sales level, but now we’re showing a loss. Gross margin
percentage this quarter was 40%, down five percentage points from the prior quarter. I’m afraid that
corporate will push hard to drop them as a customer if things don’t turn around.??
?oThat’s crazy,?? Bob responds. ?oA lot of that overhead for things like order processing, deliveries,
and sales calls would just be allocated to other customers if we dropped Franco’s. This report makes
it look like we’re losing money on Franco’s when we’re not. In any case, I am sure you can do
something to make its profitability look closer to what we think it is. No one doubts that Franco is a
very good customer.??
Required
1. Assume that Bob is partly correct in his assessment of the report. Upon further investigation, it is
determined that 10% of the order processing costs and 20% of the delivery costs would not be
avoidable if VRS were to drop Franco’s. W ould VRS benefit from dropping Franco’s? Show your
calculations.
2. Bob’s bonus is based on meeting sales targets. Based on the preceding information regarding
gross margin percentage, what might Bob have done last quarter to meet his target and receive his
bonus?
How might VRS revise its bonus system to address this?
3. Should Jack rework the numbers? How should he respond to Bob’s comments about making
Franco look more profitable? ...Read Less

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