Sales Agencies Ltd Have Identified Three Large Customers Whose Profitability

Sales Agencies Ltd have identified three large customers whose profitability is marginal. Each customer requires substantial support which involves dedicated sales and clerical staff. Corporate costs are charged at £3000 to each customer to cover central administration costs. Customer profitability information is shown below: $\begin{array}{|r|r|r|r|r|}\hline &\text { Willow } & \text { Oak } & \text { Cedar } & \text { Total } \\\hline &£&£&£&£\\\hline \text { Sales revenue }&30000 & 15000 & 25000 & 70000 \\\hline \text { Variable costs }&15000 & 4500 & 16250 & 35750 \\\hline \text { Fixed asstomer support costs }&8000 & 7000 & 9000 & 24000 \\\hline \text { Corporate costs }&3000 & 3000 & 3000 & 9000 \\\hline\end{array}$

A) The Cedar customer is unprofitable as it makes a loss of £3250
B) The Cedar customer is profitable as it makes a contribution of £8750 to fixed costs
C) The Cedar customer is unprofitable as it makes a negative contribution of £250 to corporate costs
D) The Cedar customer is profitable because it generates revenue of £25000

Correct Answer:

Verified

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