Академический Документы
Профессиональный Документы
Культура Документы
supplies to institutions and commercial businesses. It has an excellent reputation for customer service and responsiveness. Product line ranges from simple writing implements like pencils and markers to photo-copy papers.
Operation Process
Warehouse: a. Unload truckload shipments of products from manufacturers, and move them into their designated storage locations. b. After receiving customer orders, DOP warehouse personnel accumulate the cartons of items and prepare them for shipment. Customer ordering and validation: a. Set up a manual customer order b. Enter individual order lines in an order c. Validate an EDI/internet order
Orders Delivery
Commercial Trucks.
Pricing Structure
Marking up the purchased product cost by 15% to cover
the cost of warehousing, distribution, and freight. Add another markup to cover the approximate cost for general and selling expenses, plus an allowance for profit. The markups were determined at the start of each year, based on actual expenses in prior years and general industry and competitive trends. Actual prices to customers were adjusted based on longterm relationships and competitive situations, but were generally independent of the specific level of service provided to that customer, except for desk top deliveries.
Current Situation
Increase In Sales Increase In Costs Loss in profit for the 1st Time
Despite introducing innovations such as desktop delivery and electronic order entry, the DOP could not earn a profit.
Freight Warehouse Rent & Depreciation Warehouse Distribution Personnel Delivery Truck Expenses Order Entry Expenses
100% 0% 0% 0% 0%
0% 100% 90% 0% 0%
0% 0% 10% 100% 0%
0% 0% 0% 0% 20%
0% 0% 0% 0% 75%
0% 0% 0% 0% 5%
Freight Warehouse Rent & Depreciation Warehouse Distribution Personnel Delivery Truck Expenses Order Entry Expenses Totals
450,000 450,000
160,000 160,000
600,000 600,000
40,000 40,000
Customer Profitability
Customer Margin - Activity Based Costing Rate/$ Customer A Customer B Number of Activity Debit\Credit Number of Activity Debit\Credit 103,000 (85,000) 104,000 (85,000) Item Sales Cost of Items Purchased Operating Costs: Processing/Carton Freight/Carton Delivery to Desktop/Delivery Process.CustomOrd/ManualOrd EnteringItemsManual/line Process EDI Order/EDI order Interest on Accounts Receivables Customer Margin Profitability percentage(Customer Margin\Sales) 52 6 220 10 4 5 0 200 200 6 60 6 9,000 (10,400) (1,200) (60) (240) (30) (900) 5,170 5.02% 200 150 25 100 180 30,000 (10,400) (900) (5,500) (1,000) (720) (3,000) (2,520) -2.42%
1. The cost of desktop delivery. 2. The processing of manual orders. 3. The cost of entering items manually. 4. The interest on accounts receivable.
Recommendations
Difference 1: The cost of delivery to the desktop (Applying the fixed cost of the delivery truck expenses on the Desktop delivery on the customers who have used it will lower the profitability of these customers) Recommendation: Using only the shipping by commercial trucks Make use of Dakotas truck fleet in another activities as to lower the delivery truck expenses portion applied on theses customers
Recommendations
Difference 2 & 3: The processing of manual orders & the cost of entering items manually. Recommendation: Increase the pricing on Customer B to cover the loss incurred from this activity. Encourage customer B on using the EDI and the Internet for placing their sales orders by offering them a competitive pricing when using these two tools. To encourage Customer B on placing bulk orders rather than small orders, this will save the time of processing manual orders.
Recommendations
Difference 4: The interest on accounts receivable - Customer B is consuming much more from Customer A by applying the 10% interest Rate. This lost amount is a cost that needs to be figured out on how to lower it as it is lowering the cash flow and it disables the company capability in using it in other opportunities. Recommendation: To have an agreement with customer B on the payments due date by encouraging them with a price discount.
Conclusion
From applying the activity based costing the company
could find the activities lowering the profit. It gives a base for further decision making to:
Enhance the operations, Remove the unneeded activities, Increase the profit.