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Managerial: Accounting by Elizabeth Davis, Charles E. Davis

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Focus On

images CUSTOMER PROFITABILITY

After studying this focus unit, you should be able to meet the following learning objectives (LO).

  1. Use activity-based costing techniques to measure customer profitability.
  2. Identify alternatives for managing unprofitable customer accounts.

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The Pitch

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Terrence Gleason and Beth Wommack sat in the main conference room at Bradley Textile Mills, chatting as they waited for the monthly sales staff meeting to begin. “I thought I was going to be late,” Beth said. “Taylor Byrd from Sparrow Designs just called with another rush order; I don't know why they can't plan any better. All their orders seem to be rush jobs.”

“Well, they generate almost $2 million in revenue for us, so we need to keep them happy,” Terrence responded.

“I know, I know, but they take up so much of my time. I think I spend more time with them than with all my other customers combined,” said Beth. “At least they're really nice to work with,” she added.

As the meeting began, Lindsay Stang, vice president for marketing and sales, announced that the top brass at Bradley Textile Mills wanted a complete review of all sales accounts. “Selling expenses have been growing rapidly—faster than sales—and ...

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