Answer to customer profitability analysis questions

Q1 Ackers

Order taking – 1534/118 = £13 per order

Packing – 5250/1250 = £4.20 per unit

Dispatch – 4312.50/1250 = £3.45 per unit

Warehousing – 1007/95 = £10.60 per sq mtr

AC Admin – 2242/118 = £19 per order

Customer AC Cost

Activity Bobowler Ganzy Donnies

Order Taking 13 x 13 = 169 66 x 13 = 858 39 x 13 = 507
Packing 300 x 4.20 = 1260 500 x 4.20 = 2100 450 x 4.20 = 1890
Dispatch 300 x 3.45 = 1035 500 x 3.45 = 1725 450 x 3.45 = 1553
Warehousing 30 x 10.60 = 318 40 x 10.60 = 424 25 x 10.60 = 265
13 x 19 = 247 13 x 19 = 247 66 x 19 = 1254 39 x 19 = 741

3029 6361 4956

Customer Profitability Analysis

Bobowler Ganzy Donnies

Sales Revenue 120000 150000 90000
GP (@30%) 36000 45000 27000
Direct Traceable Cost 13120 18476 13620
Activity Costs 3029 6361 4956

NP 19851 20163 8424

Bobowler Ganzy Donnies

Profit as a % of sales 16.5% 13.4% 9.4%
Indirect costs as a % of 2.5% 4.2% 5.5%
sales
Direct support as a % 10.9% 12.3% 15.1%
of sales
Q2

a) Firstly calculate the process cost-driver rate

Activity Annual Cost Process Annual Process cost Driver

£ Driver number of Rate
Process
Drivers
Visit of sales 450000 Visit 1800 £250/visit
representative
Delivery of 700000 Kilogram-mile 10,000,000 £0.07/Kg-mile
products
Product 50000 Modification 25 £2000/modification
modification
required by
customer
Order 48000 Order 3200 £15/order
processing
Other (phone 35200 Order 3200 £11/order
calls, e-mails
etc.)

Customer Support Analysis

Activity Process Driver Customer A Customer B

Rate Process Driver Cost (£) Process Driver Cost (£)
Visits £250/visit 25 6250 4 1000
Deliveries £0.07/Kg-mile 950000 66500 300000 21000
Modifications £2000/mod 14 28000 0 0
Orders £15/order 104 1560 12 180
Other £11/order 104 1144 12 132
Total Cost of
servicing 103454 22312
Product Costs 300000 298000
Sales Revenue 594000 571000
Customer
Contribution 190546 250688

b) Reduce the number of visits, will A increase the size of its orders, can A be discouraged from
making modifications, discuss issues with customers
Q3

L M N O
Customer
attributable
costs:
Sales order 60000 30000 15000 9000
processing
Sales visits 4000 2000 1000 1000
Normal deliveries 30000 1000 2500 1250
Special deliveries 10000 2500 0 0
Credit collection 24658 8220 1370 5480
128658 52720 19870 16730
Operating Profit 90000 120000 70000 200000
contribution
Contribution to (38658) 67280 50130 183270
higher level
sustaining
expenses

Notes

Normal deliveries = Km per delivery x No. of deliveries x £1

Credit collection = Annual sales revenue x 10% x (average collection period/365)