1. The gross margin for each customer is as follows:
1. Gross Margin
P
Q
R
T
Bottles Sold
50000
210000
1460000
94000
List Selling Price
0.6
0.6
0.6
0.6
Actual Selling Price
0.6
0.59
0.55
0.54
COGS
0.5
0.5
0.5
0.5
Gross Margin
16.67%
15.25%
9.09%
7.41%
2. The operating profit for each customer is as follows:
2. Operating Profit
P
Q
R
T
Bottles Sold
50000
210000
1460000
94000
Actual Selling Price
0.6
0.59
0.55
0.54
Revenue
30000
123900
803000
50760
COGS
25000
105000
730000
47000
Gross Margin
5000
18900
73000
3760 less operating costs
Purchase Orders
1500
2500
3000
3000
Sales Visits
160
320
480
240
Deliveries
280
240
360
1600
Hot-hot runs
0
0
0
300
Handling
1000
4200
29200
1880
Total Operating Costs
2940
7260
33040
7020
Operating Profit
2060
11640
39960
-3260
3. Using activity-based costing, it is evident that the most profitable customer is R, which is also the largest customer. This company contributes most of the company's total profit. The figures also reveal that while Q and P contribute profit to the company, T does not. This customer costs the company $3260 in loss. This loss is attributable to a couple of key factors. One is the distance to the customer, which is by far the highest. The other is the high number of purchase orders and deliveries relative to the number of total bottles sold. Customer T is making a lot of small orders and the result is that the
Owens & Minor is a distributor of surgical and medical supplies to hospitals and other health care facilities. Due to changing demand from customers, the company is facing increased operating costs, which has resulted in lower profit margins and even losses. In 1993, O&M recorded an $18 million profit, which was reduced to a loss of $11 million in 1995. The entire industry is experiencing similar difficulties. In an effort to resume profitability, O&M is evaluating alternatives to “cost-plus pricing”. Cost-plus pricing does not reflect the true cost of the services provided by O&M. Customers are demanding more of O&M while
In the worst case scenario, we assume there is a 5% fluctuation in unit sale price and unit variable
The purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs.
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While we are performing our analysis on different aspects of the company, we look at the three main types of cost. When we remain devoted to improving our costs, and the faults related, we show our same devotion to our consumers. This is portrayed by the quality of products we put on the shelves. Prevention costs, appraisal costs and Failure costs are areas
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Given the use of each resource in the sales fulfillment cycle, determine the profitability of each customer.
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11. Prepare a table that illustrates the percentage change in costs between the volume-based system and the strategic activity-based system.
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