SOLUTION: Customer support & distribution costs are pretty high at Millenium. The total amount was $180,000 last year. The marketing manager has recently been to a seminar and learned about

Question 314036: Customer support & distribution costs are pretty high at Millenium. The total amount was $180,000 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.
Customer Support Department Stores Specialty Shops Gift shops
& Distribution Costs Activity Level Activity Level Activity Level

sales(units) 10,000 5,000 5,000
revenue $150,000 $100,000 $250,000
contribution
margin ratio 50% 75% 80%
#customers 5 45 250
total cost $40,000 10 90 900
total sales 80,000 5 195 800
total shipments 60,000 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.

Found 2 solutions by searge88, beh929:
Answer by searge88(1) (Show Source): You can put this solution on YOUR website!

Answer by beh929(1) (Show Source): You can put this solution on YOUR website!
lk;k
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