Question: Customer Profitability; Strategy The following table gives the sales, product cost, and cost-to-serve data for a merchandising store. The store has four types of merchandise and three types of customers.
The costs to serve all customers is $140,000 and is allocated to customer types based on the number of units sold.
1. Determine the gross profit margin percentage of sales for each product. Which product is the most profitable?
2. Determine the gross profit margin percentage of sales for each customer type.
3. Determine the cost-to-serve percentage of sales for each customer type.
4. Which customer is the most profitable?
5. Prepare a chart that shows the customer gross margin percentage and cost-to-serve percentage for the three customers. Recommend a strategy for profit improvement for each customer.