Question

The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Lancashire sold 1,000,000 cases last year to the following types of customers:

CUSTOMER	PRICE PER CASE	CASES SOLD
Drugstore chains	$5.00	375,000
Gas station chains	$5.50	125,000
Supermarket chains	$6.50	500,000
Local pharmacies	$6.00	250,000

The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.

The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.

The supermarket chains order electronically through EDI which costs $25,000 annually. Lancashire is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle.

Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing $0.25 per case. Bad debt expense averages 10% of sales.

What is the profit per case for drugstore chains?

Answer 1

Solution:
	The profit per case for drugstore chains = $2.68
Working Notes:
	Total cost for Drugstore chains
	Manufacturing cost	$750,000
	[375000 x 2 ]
	Special handling costs	75000
	[375,000 x 0.20 ]
	administrative assistance costing	45,000
	Total cost for Drugstore chains	$870,000
	Total cost for Drugstore chains per case	$2.32 per case
	[870,000 ÷ 375,000 =$2.32 per case ]
	The profit per case for drugstore chains = Price per case - cost per case
		=$5 - $2.32
		=$2.68
Please feel free to ask if anything about above solution in comment section of the question.