Question

Q18-3: SkinTan’s top five customers generate sales revenue of £950,000 per annum. Each generates a different gross margin as a consequence of price negotiations that have been carried out over several years. Because of their location, each customer incurs different distribution expenses. Sales commissions are paid at the rate of 6% on all sales. Fixed costs are customer specific, covering salaries of sales and office staff who service each customer. The following table shows the information for each of the top customers for the previous year.

Sales	250,000	250,000	200,000	150,000	100,000
Gross margin %	30%	25%	21%	37%	39%
Distribution expenses	30,000	14,000	25,000	12,000	6,000
Fixed costs	30,000	25,000	16,000	15,000	10,000

Carry out a customer profitability analysis and make recommendations in relation to any future strategies SkinTan should take in relation to its top customers.

Potential Matches:

1 : 19,500

2 : -11,000

3 : 17,000

4 : 8,500

5 : 0

    Answer

___: Customer A

___: Customer B

___: Customer C

___: Customer D

___: Customer E

Answer 1

Particulars	customer 1	2	3	4	5
Margin	75000	62500	42000	55,500	39000
Distribution expenses	30,000	14,000	25,000	12,000	6,000
Fixed costs	30,000	25,000	16,000	15,000	10,000
Profit before commission	15,000	23,500	1000	28,500	23,000
Sales commission	15000	15000	12000	9000	6000

Net profit. 0. 8,500. (11,000). 19,500. 17000

Customer 4 is the most profitable, more sales should be made to him.

Customer 3 is the least profitable or loss making, either price revision should be done or disassociation.