MODULE 4

Module 4 - Case (3 pages)

Principles of Accounting

Customer support and distribution costs associated with the three types of customers

Description

Customer Support & Distribution Costs

Department Stores

Specialty Shops

Gift Shops

 

 

 

 

 

 

 

 

 

 

 

Activity Level

Activity Level

Activity Level

Total

% of the Total (D)

 % of the Total (S)

 % of the Total (G)

Sales (units)

 

10,000

5,000

5,000

 

 

 

 

Revenues

 

$150,000

$100,000

$250,000

500000

30%

20%

50%

Contribution margin ratio

 

50%

75%

80%

 

 

 

 

No of customers

 

5

45

250

 

 

 

 

Total costs/No of orders places

$40,000

10

90

900

1000

0.01

0.09

0.9

Total costs/No of sales calls

80,000

5

195

800

1000

0.005

0.195

0.8

Total costs/No of shipments

60,000

20

480

1,000

1500

0.0133

0.32

0.66

Customer support and Distribution Costs

Costs Based on Revenues

 

Customer Support & Distribution Costs

Department Stores

Specialty Shops

Gift Shops

 

 

 

 

 

Revenue Level

Revenue Level

Revenue Level

Total costs/No of orders places

$40,000

$12,000.00

$8,000.00

$20,000.00

Total costs/No of sales calls

80,000

$24,000.00

$16,000.00

$40,000.00

Total costs/No of shipments

60,000

$18,000.00

$12,000.00

$30,000.00

Customer support and Distribution Costs

Activity Based Costing

 

Customer Support & Distribution Costs

Department Stores

Specialty Shops

Gift Shops

 

 

 

 

 

Activity Level

Activity Level

Activity Level

Total costs/No of orders places

$40,000

$400.00

$3,600.00

$36,000.00

Total costs/No of sales calls

80,000

$400.00

$15,600.00

$64,000.00

Total costs/No of shipments

60,000

$799.80

$19,200.00

$40,002.00

2) Contribution margin less customer support and distribution costs for both approaches

Costs Based on Revenues

Description

Department Stores

Specialty Shops

Gift Shops

 

 

 

Activity Level

Activity Level

Activity Level

Sales (units)

10,000

5,000

5,000

Revenues

$150,000

$100,000

$250,000

Contribution Margin

$75,000.0

$50,000.0

$125,000.0

Less: Customer Support &Dist Costs:

 

 

 

Total costs/No of orders places

$12,000.00

$8,000.00

$20,000.00

Total costs/No of sales calls

$24,000.00

$16,000.00

$40,000.00

Total costs/No of shipments

$18,000.00

$12,000.00

$30,000.00

Net income

21000

14000

35000

Activity Based Costing

Description

Department Stores

Specialty Shops

Gift Shops

 

 

 

Activity Level

Activity Level

Activity Level

Sales (units)

10,000

5,000

5,000

Revenues

$150,000

$100,000

$250,000

Contribution Margin

$75,000.0

$50,000.0

$125,000.0

Less: Customer Support & Dist Costs

 

 

 

Total costs/No of orders places

$400.00

$3,600.00

$36,000.00

Total costs/No of sales calls

$400.00

$15,600.00

$64,000.00

Total costs/No of shipments

$799.80

$19,200.00

$40,002.00

Net income

73400.2

11600

-15002

3) Which type of customer should the company support and why?  Refer to your analysis in your response.

After the above calculation, the marketing manager should go for Gift Shops, if he is looking through Activity Level as the net income is the highest among three shops with $35000, while if we look from Activity Based Costing, Department Stores is generating highest revenue of $73400.2 ...