Rick Flair, the controller of Best Drugs, wants to use this ABC system to examine individual

customer profitability within each distribution market. He focuses first on the Ma and Pa single-
store distribution market. Using only two customers helps highlight the insights available with the
ABC approach. Data pertaining to these two customers in August 2017 are as follows:

1. Use the ABC information to compute the operating income of each customer in August 2017.
Comment on the results and what, if anything, Flair should do.
2. Flair ranks the individual customers in the Ma and Pa single-store distribution market on the
basis of monthly operating income. The cumulative operating income of the top 20% of customers
is $58,120. Best Drugs reports operating losses of $23,670 for the bottom 40% of its customers.
Make four recommendations that you think Best Drugs should consider in light of this new
customer-profitability information.

(2025 min.) Customer profitability, distribution.

1. The activity-based costing for each customer is:

Ann Arbor San Diego

Pharmacy Pharmacy
1. Order processing,
$42 × 13; $42 × 7 $ 546.00 $ 294.00
2. Line-item ordering,
$5 × (13 × 11; 7 × 19) 715.00 665.00
3. Store deliveries,
$47 × 5; $47 × 7 235.00 329.00
4. Carton deliveries,
$4 × (5 × 21; 7 × 18) 420.00 504.00
5. Shelf-stocking,
$13 × (5 × 0.5; 7 × 0.75) 32.50 68.25