Customer Profitability Analysis: Spring Company collected the following data pertaining to its

activities with selected customers.

  HS Inc. Adventix Baldwin

Total sales $600,000 $750,000 $900,000
Sales
2% 3% 2%
discount a
Sales terms b 2/10, n/30 1/15, n/60 2/10, n/eom
FOB
Shipping FOB FOB
Shipping
terms Destination Destination
point
Sales returns
2% 4% 3%
rate c
Number of
10 5 50
orders d
Units per
100 250 30
order
Expedited
0 2 5
order
Sales visits 1 1 2
Number of
3 4 10
sales returns
a
Sales discounts are incentives offered on the full
invoice price
b
Sales terms are an incentive in the form of a reduction
of the net invoice amount to customers that pay an
invoice early
c
Sales returns are all completed within the first 10 days
of this billing month
d
Each order is filled in a single delivery

Spring Company mails monthly statements on or before the first day of each month. HS pays all of its
account payables within the payment discount periods. Adventix does not take the early payment
discounts. In fact, the company pays half of its accounts on the date that these accounts are due and pays
the remainder at the end of the following month. Baldwin also does not take advantage of discounts for
early payments. However, it pays its accounts on the specified due date. Cost of goods sold is sixty
percent of gross sales price. Joan Lieberman, the controller of Spring Company, has estimated that the
cost of working capital is approximately 2 percent per month.

Lieberman also gathered the following cost data:

Activity Cost Driver and Rate

Order taking $50 per order
Order processing $75 per order
Delivery $300 per delivery
Expedited orders $500 per order
$10 per unit plus $200 per
Restocking
return
Sales visits $800 per visit

Required:

Prepare and interpret a customer profitability analysis for Spring Company. How does it help Spring
Company become more competitive and profitable?