A. Initial system profitability 1. Exhibit 2 shows: Customer Profitability of Alanson is $450,225(the most profitable customer); second is Boyne $205,170; and the least profitable customer is Conway $55,890. 2. Exhibit 3: Alanson is a large client in terms of sales volumes, the management of Jamestown should keep the volumes of sales on the same level or try to increase sales to this customer. For Boyne, who is a medium-size client, the purpose is to increase sales as much as possible. The same policy could be taken by Jamestown management also toward Conway. B. 1. The company uses the same rate to measure cost of G&A and W&S, there will affect customers’ profitability. Jamestown should used different services provide to different customers. The cost of special service will affect customers’ profitability.
2, The assignment of costs cannot be just a percentage from sales or GODS; the calculations should be more complicated and take into account more specific details: * count of sold items, or number of orders, * specific of production (e.g. orders requiring special services), * peculiarity of industry, * time
C. Initial Customer Profitability System does not provide supportive cost information to Jamestown Management team. This system could be defined as negative: provided information leads management to make worse decisions about customers.
D. initial system is simplified: customer profitability was calculated based on sales minus costs (cost of goods sold, W&S costs, G&A costs). W&S and G&A costs are calculated based on pre-calculated rates and are the same to all customers. Initial system indicated high- sales volume customer as the most profitable while low sale volume customers provide least profit.
Alternative system takes into account spent time (overtime); ordered service(special