Business Levels : The 80-20 Rule

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(6-4) In business, the 80-20 rule refers to the common finding that when a business levels its products and/or customers from the highest sales volume to the lowest, they tend to find that the 20% top-selling products/customers are responsible for about 80% of the total sales. Therefore, 20% of the cause/activities/product will attribute to 80% of the effect/outcome/sales. (6-23): Salespersons’ incentives, customer profitability (a) To determine which customer is more profitable for the company, several different factors will have to be assessed: the number of total sales for each customer subtracting the cost of goods sold – that will give the gross margin. The MDSA expenses will be subtracted from the gross margin to give the overall…show more content…
Commissions on the profit structure would lean towards Donner ($10,200) since that is profitable and Carlson is not (as seen in solution 6-23a). Furthermore, the total cost on the profit structure will cost the company less than under the revenue structure ($17,000 vs $10,200) 6-27: Customer profitability analysis, original activity-based costing (a) To determine the yearly profit associated with the four different types of customers identified in Kronecker, multiple factors will have to be assessed: First, the net sales will have to be determined for each customer: Type 1 Type 2 Type 3 Type 4 Sales (given) $1000 $1000 $2500 $3000 Value of returns - $0 - $200 -$500 -$1500 Net sales (total) $1000 $800 $2000 $1500 Secondly, the cost of goods sold and the cost driver rates for each activity will have to be totaled and then subtracted from the net sales: Activity Type 1 Type 2 Type 3 Type 4 Cost, 75% of sales 750 600 1500 1125 $5 non-phone order 0 30 20 0 $80 process phone 20 0 0 80 $5 per item return 0 20 10 120 $4 per overnight 4 0 0 48 Customer relations 50 50 50 50 Total 824 700 1580 1423 Lastly, the total of the activities will be subtracted from the net sales to determine the profit,
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