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
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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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