Clark Corporation Manufactures Cooling System Components $\text { Cost-driver data used by the firm and traceable to Engle and Midwest are. }$

Essay

Clark Corporation manufactures cooling system components. The company has gathered the following information about two of its customers: Engle Equipment and Midwest Refrigeration.
$\begin{array}{lcc}&\text { Engle }& \text { Midwest } \\&\underline {\text { Equipment }}& \underline {\text { Refrigeration }} \\\text { Sales revenue } & \$ 215,000 & \$ 154,000 \\\text { Cost of goods sold } & 95,000 & 68,000 \\\text { General selling costs } & 30,000 & 21,500 \\\text { General administrative costs } & 21,000 & 15,050\end{array}$

$\text { Cost-driver data used by the firm and traceable to Engle and Midwest are. }$


$\begin{array}{llc}\underline {\text { Customer } } & \underline { \text { Cost Driver } } & \underline { \text { Pool Rat } } \\\underline { \text { Activity }} \\\text { Sales activity } & \text { Sales visits } & \$ 900 \\\text { Order taking } & \text { Sales orders } & 250 \\\text { Special handling } & \text { Units handled } & 30 \\\text { Special shipping } & \text { Shipments } & 600\end{array}$ $\begin{array}{lll}\underline {\text { Customer } }&\text { Engle }& \text { Midwest } \\\underline { \text { Activity }}&\underline {\text { Equipment }}& \underline {\text { Refrigeration }} \\\text { Sales activity } & 8 \text { visits } & 5 \text { visits } \\\text { Order taking } & 17 \text { orders } & 22 \text { orders } \\\text { Special handling } & 600 \text { units } & 550 \text { units } \\\text { Special shipping } & 19 \text { shipments } & 30 \text { shipments }\end{array}$ Required:
A. Perform a customer profitability analysis for Clark. Compute the gross margin and operating income on transactions related to Engle Equipment and Midwest Refrigeration.
B. Compute gross margin as a percentage of sales revenue. Then compute (1) general selling and administrative costs as a percentage of gross margin and (2) total customer-related costs (i.e., costs that arise from sales visits, order taking, and special handling and shipping) as a percentage of gross margin.
C. On the basis of your calculations, which of the two customers is "more costly" to deal with? Briefly explain.