Activity-Based Customer-Driven Costs
Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter:
JIT Distributors |
Non-JIT Distributors |
||
Sales orders | 1,000 | 100 | |
Sales calls | 70 | 70 | |
Service calls | 350 | 175 | |
Average order size | 850 | 8,500 | |
Manufacturing cost/unit | $125 | $125 | |
Customer costs: | |||
Processing sales orders | $3,230,000 | ||
Selling goods | 1,120,000 | ||
Servicing goods | 1,050,000 | ||
Total | $5,400,000 |
Required:
1. Calculate the total revenues per distributor category, and assign the customer costs to each distributor type by using revenues as the allocation base. Selling price for one unit is $150. Round calculations to the nearest dollar.
JIT | Non-JIT | |||
Sales (in units) | ||||
Sales | $ | $ | ||
Allocation | $ | $ |
2. Conceptual Connection: Calculate the customer cost per distributor type using activity-based cost assignments. Round the interim calculations to the nearest dollar.
JIT | Non-JIT | |||
Ordering costs | $ | $ | ||
Selling costs | $ | $ | ||
Service costs | $ | $ | ||
Total | $ | $ |
For non JIT distributors by how much can the price be decreased without affecting customer profitability? Round your answer to the nearest cent.
$ per unit
WORKINGS: | ||||
1) | JIT | Non-JIT | Total | |
Sales orders | 1,000 | 100 | 1,100 | |
Sales calls | 70 | 70 | 140 | |
Service calls | 350 | 175 | 525 | |
Average order size | 850 | 8,500 | 9350 | |
2) | Working of activity rates: | |||
Cost pool | Overhead | Activity | Activity | |
Cost | Volume | Rate | ||
Processing sales orders | 3230000 | 1,100 | 2936 | |
Selling goods | 11,20,000 | 140 | 8000 | |
Servicing goods | 10,50,000 | 525 | 2000 | |
Total | 5400000 | |||
ANSWERS: | ||||
1) | JIT | Non-JIT | ||
Sales (in units) | 850000 | 850000 | ||
Sales | 127500000 | 127500000 | ||
Allocation (Ratio of 1:1) | 2700000 | 2700000 | ||
Customer cost per unit | $ 3.18 | $ 3.18 | ||
2) | JIT | Non-JIT | ||
Ordering costs | 2936000 | 293600 | ||
Selling costs | 560000 | 560000 | ||
Service costs | 700000 | 350000 | ||
Total | 4196000 | 1203600 | 5399600 | |
Customer cost per unit | $ 4.94 | $ 1.42 | ||
Reduction in Non-JIT distributors price = 3.18-1.42 = | $ 1.76 |
Activity-Based Customer-Driven Costs Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT...
Activity-Based Customer-Driven Costs Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter: JIT Distributors Non-JIT Distributors Sales orders 1,200 120 Sales calls 70 70 Service calls 350 175 Average order size 550...
Activity-Based Customer-Driven Costs Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter: JIT Distributors Non-JIT Distributors Sales orders 700 70 Sales calls 70 70 Service calls 350 175 Average order size 750...
Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter: JIT Distributors Non-JIT Distributors Sales orders 900 90 Sales calls 70 70 Service calls 350 175 Average order size 650 6,500 Manufacturing cost/unit...
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