Answer:
a. Customer A.
Explanation:
operating profit = EBIT
in this case, the company allocates fixed operating costs equally, which is incorrect since the sales volumes are very different. Fixed operating costs should be allocated proportional to the amount of units sold:
total fixed operating costs = ($30,000 x 4) + ($20,000 x 4) + ($10,000 x 4) = $240,000
total sales = 10,000 + 20,000 + 35,000 + 50,000 = 115,000 units
fixed operating costs per unit = $240,000 / 115,000 = $2.08696 per unit
A B C D
units sold 10,000 20,000 35,000 50,000
sales $100,000 $150,000 $200,000 $250,000
total variable costs $75,000 $105,000 $125,000 $155,000
allocated fixed costs $20,869 $41,739 $73,044 $104,348
EBIT per customer $4,131 $3,261 $1,956 -$9,348
EBIT per unit $0.41 $0.16 $0.06 -$0.19
Since customer A's EBIT per unit sold is higher, then it is the client with the highest customer level operating profit per unit sold.
