Scribd
Upload
29 views1 page

Ann Arbor Pharmacy San Diego Pharmacy

The document summarizes the operating income for two pharmacy customers - Ann Arbor Pharmacy and San Diego Pharmacy. It shows that Ann Arbor Pharmacy has higher revenues of $13,000, lower costs of $10,500, and a higher operating income of $551.50 compared to San Diego Pharmacy with revenues of $13,300, costs of $11,900, and an operating loss of $460.25. Overall, Ann Arbor Pharmacy is profitable for the business while San Diego Pharmacy is not.

Uploaded by

Elliot Richard
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
29 views1 page

Ann Arbor Pharmacy San Diego Pharmacy

The document summarizes the operating income for two pharmacy customers - Ann Arbor Pharmacy and San Diego Pharmacy. It shows that Ann Arbor Pharmacy has higher revenues of $13,000, lower costs of $10,500, and a higher operating income of $551.50 compared to San Diego Pharmacy with revenues of $13,300, costs of $11,900, and an operating loss of $460.25. Overall, Ann Arbor Pharmacy is profitable for the business while San Diego Pharmacy is not.

Uploaded by

Elliot Richard
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

Operating costs $1,948.50 $1,860.

25

The operating income of each customer is:


Ann Arbor San Diego
Pharmacy Pharmacy
Revenues,
$2,600 × 5; $1,900 × 7 $13,000.00 $13,300.00
Cost of goods sold,
$2,100 × 5; $1,700 × 7 10,500.00 11,900.00
Gross margin 2,500.00 1,400.00
Operating costs 1,948.50 1,860.25
Operating income $ 551.50 $ (460.25)

San Diego Pharmacy has a lower gross margin percentage than does Ann Arbor [10.5%
($1,400 ÷ $13,300) vs. 19.2% ($2,500 ÷ $13,000)] and consumes a lot of resources to
obtain this lower margin. Serving San Diego necessitates more deliveries and delivery of
more line items in each order, albeit lower-priced ones that don’t contribute much to Best
Drugs’ income. Overall, Ann Arbor is a profitable customer, while San Diego is not.

2. Ways Best Drugs could use this information include:


a. Pay increased attention to the top 20% of the customers. This could entail asking
them for ways to improve service. Alternatively, Best Drugs may want to highlight
to their own personnel the importance of these customers; e.g., it could entail
stressing to delivery people the importance of never missing delivery dates for
these customers.
b. Work out ways internally at Best Drugs to reduce the rate per cost driver; e.g.,
reduce the cost per order by having better order placement linkages with
customers. This cost reduction by Best Drugs will improve the profitability of all
customers.
c. Work with customers so that their behavior reduces the total “system-wide” costs.
At a minimum, this approach could entail having customers make fewer orders and
fewer line items. This latter point is controversial with students; the rationale is
that a reduction in the number of line items (diversity of products) carried by Ma
and Pa stores may reduce the diversity of products Best Drugs carries.

There are several options here:


 Simple verbal persuasion by showing customers cost drivers at Best Drugs.
 Explicitly pricing out activities like cartons delivered and shelf-stocking so that
customers pay for the costs they cause.
 Restricting options available to certain customers, e.g., customers with low
revenues could be restricted to one free delivery per week.

An even more extreme example is working with customers so that deliveries are
easier to make and shelf-stocking can be done faster.

You might also like