SOLUTION: Towels & More For the year ended 12-31-XX Sales $600,000 Variable Production Costs 180,000 Contribution Margin $420,000 Fixe

Question 856521: Towels & More

For the year ended 12-31-XX

Sales

$600,000

Variable Production Costs

180,000

Contribution Margin

$420,000

Fixed Costs:

Production Overhead

$120,000

Sellling & Distribution Costs

240,000

Fixed costs total: $360,000

Net Operating Income

$60,000

======

Customer support & distribution costs are pretty high at T&M. The total amount was $240,000 last year. The marketing manager has recently been to a seminar and learned about applying ABC to analyze customer and distribution costs. He suggests that the company analyze overhead costs associated with supporting different types of customers before proceeding with an expansion. The marketing manager knows that the small shops require a lot of attention and is somewhat dubious about the CEO's proposed strategy. The CEO accepts the suggestion and you are brought in as a consultant to prepare the analysis. The table below provides some information that may be pertinent for the analysis.

Description

sales(units) 10,000 5,000 5,000
revenue $200,000 $100,000 $300,000
contribution
margin ratio 50% 80% 80%
#customers 5 45 250
total costs/No. of orders places: $40,000 10 90 900
total costs/No. of sales calls: $80,000 5 195 800
total costs/No. of shipments $120,000 20 480 1,000
Calculate the customer support and distribution costs associated with the three types of customers.
Use a simple strategy first and allocate the costs based on revenues.
Recalculate the allocations using activity based costing (ABC).
Determine contribution margin less customer support and distribution costs for both approaches above.
Which type of customer should the company support and why? Refer to your analysis in your response.
Answer by ewatrrr(24785) (Show Source): You can put this solution on YOUR website!

 

Hi,

My recommendation would be to set up a table on a spread sheet

that makes sense to You and repost

For Example Purposes only:

C	S	R	C-O 	C-Call	C-shipments

5	$10,000	$200,000	$40,000	$80,000	$120

45	$5,000	$100,000	$1,090	$5,195	$20,480

250	$5,000	$300,000	$900	$800	$1,000



 

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