Homestead Corporation

Homestead Corporation sells a line of power tools to home improvement chains, generating a cost of goods sold equal to 70% of net sales. The selected data that follow relate to the period just ended for the company's three largest customers: Weekend Project, Tool Mart, and Fix-It City. Weekend Project Gross sales volume: Dollars Number of orders Type of order: Regular Rush Sales returns: Dollars Number of returns Total customer-related costs $2,000,000 50 40 10 $100,000 3 $245,100 Tool Mart $4,900,000 175 135 40 $400,000 20 $918,000 Fix-It City $4,600,000 125 110 15 $240,000 8 $457,800

Homestead's management recently attended a seminar and learned that customers with excessive requests and demands can have a significant, negative impact on corporate profitability. Required: 1. For each of the three chains, compute: a. Total customer-related costs as a percentage of gross margin. b. The average order size (ignoring sales returns). c. The ratio of regular orders to rush orders. d. The number of sales returns as a percentage of the number of total orders. 2. Prepare a brief summary of your findings. Should Homestead work with any of the chains in an effort to improve results? Explain.