Marcel's Manufacturing has assembled the following information about its customer base:
| Customer |
Revenue |
Var. Costs |
Fixed Costs |
Net Revenue |
| 1 |
$2,579,856 |
$2,941,036 |
$130,154 |
($491,333) |
| 2 |
548,868 |
$472,026 |
$27,690 |
$49,151 |
| 3 |
4,568,218 |
3,791,621 |
230,466 |
546,131 |
| 4 |
658,279 |
579,286 |
33,210 |
45,783 |
| 5 |
4,865,882 |
3,454,776 |
245,484 |
1,165,622 |
| 6 |
813,224 |
561,125 |
41,027 |
211,072 |
| 7 |
9,135,872 |
7,491,415 |
460,904 |
1,183,553 |
| 8 |
597,254 |
465,858 |
30,131 |
101,264 |
| 9 |
851,336 |
740,662 |
42,950 |
67,724 |
| 10 |
244,568 |
247,014 |
12,338 |
(14,784) |
| 11 |
1,289,657 |
1,444,416 |
65,063 |
($219,822) |
| 12 |
681,278 |
517,771 |
34,370 |
129,136 |
| 16 |
792,856 |
539,142 |
40,000 |
213,714 |
| 13 |
792,856 |
2,579,670 |
123,947 |
(246,788) |
| 14 |
3,892,868 |
3,270,009 |
196,395 |
426,464 |
| 15 |
1,687,581 |
1,113,803 |
85,138 |
488,639 |
| 17 |
716,892 |
580,683 |
36,167 |
100,042 |
| 18 |
1,879,542 |
1,935,928 |
94,823 |
(151,209) |
| 19 |
899,799 |
629,859 |
45,395 |
224,545 |
| 20 |
482,582 |
376,414 |
24,346 |
81,822 |
| Total |
$39,643,241 |
$33,732,515 |
$2,000,000 |
$3,910,726 |
Marcel's annual fixed costs consist of marketing expenses of $300,000 and administration costs of $1,700,000. These are allocated to each customer based on relative revenue [e.g., customer 1 fixed costs = $2M x ($2,579,856/39,643,241) = $130,154 (rounded)]. The general manager has suggested that customers 1, 10, 11, 13, and 18 be dropped, as they are not generating net revenue. You are uneasy with this decision.
Required:
a. What would you recommend to the general manager? Show your calculations.
b. Create an appropriately-labelled whale curve?.