Problem

Customer Profitability Analysis; Customers Ranked by Sales RevenueThe customer-profitabili...

Customer Profitability Analysis; Customers Ranked by Sales Revenue

The customer-profitability analysis for Patio Grill Company. which is displayed in Exhibit 5-14, ranks customers by operating income. An alternative,often-used approach is to rank customers by sales revenue.

Required:

1. List the customer numbers in the left-hand column of Exhibit 5- 14 by sales revenue, from highest to lowest. Is the ranking different from that in Exhibit 5- 14?

2. Patio Grill Company’s smallest customers, in terms of sales revenue, are last in the listing prepared for requirement (1). Are these customers the company's least profitable?

3. Would the customer-profitability profile in Exhibit 5-1 5 be different if the customers were ranked by sales revenue instead of operating income? Explain.

4. What factors could cause a larger customer (in terms of sales revenue) to be less profitable than a smaller customer?

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