Customer profitability in a manufacturing firm. Antelope Manufacturing makes a compo...

Customer profitability in a manufacturing firm. Antelope Manufacturing makes a component

called A1030. This component is manufactured only when ordered by a customer, so Antelope keeps no

inventory of A1030. The list price is $115 per unit, but customers who place “large” orders receive a 12%

discount on price. The customers are manufacturing firms. Currently, the salespeople decide whether an

order is large enough to qualify for the discount. When the product is finished, it is packed in cases of 10.

If the component needs to be exchanged or repaired, customers can come back within 10 days for free

exchange or repair.

The full cost of manufacturing a unit of A1030 is $95. In addition, Antelope incurs customer-level costs.

Customer-level cost-driver rates are:

Information about Antelope’s five biggest customers follows:

All customers except E ordered units in the same order size. Customer E’s order quantity varied, so E got a

discount part of the time but not all the time.

1. Calculate the customer-level operating income for these five customers. Use the format in Exhibit 14-3.

Prepare a customer-profitability analysis by ranking the customers from most to least profitable, as in

Exhibit 14-4.

2. Discuss the results of your customer-profitability analysis. Does Antelope have unprofitable customers?

Is there anything Antelope should do differently with its five customers?