Overview This case, as the Happy Chips Case does, illustrates the point that it is important to know where your costs and profits come from. It extends the point of Happy Chips by also introducing consideration of asset investments and return on assets. In this case, a new cost accountant introduces segmental profitability, contribution margin, and the strategic profit model to Cooper Processing Company to aid in analysis of two different distribution channels. Note to Instructors: Because this case is short and the required math is quite simple, we often use this case as part of an exam or an in-class quiz! Solutions to Questions The accompanying PowerPoint slides contain the answers to the first two questions. 1. How profitable is each channel? Slide 1 can be used for comparison of a “net profit” approach to segmental profitability with slide 2 which shows a contribution approach. Slide 1 is actually more simplistic than any real cost accountant would advocate. The Gross Margin for each channel is computed using the overall company Gross Margin percentage of 40%; even though the case clearly states that the Gross Margin percentages are different in each channel. The expenses are not broken down by category of expense and the total expense of $55 million is simply allocated on the basis of revenue. Slide 2 provides an activity based, contribution format for profitability analysis. The allocations for Selling, Promotion, Order Processing, Packaging, Labeling, and Delivery are based on the “activity” description provided in the case and are very simple to derive. Very few students ever have difficulty with these costs. However, many students frequently ignore or don’t understand the implications of the case information regarding inventory and accounts receivables. Since both of these assets are directly traceable to the