JIT Distributors Non-JIT Distributors Sales orders 700 70 Sales calls 70 70 Service calls 350 175 Average order size Manufacturing cost/unit 750 7,500 $125 $125 Customer costs: Processing sales orders Selling goods Servicing goods Total $3,080,000 1,120,000 1,050,000 $5,250,000
Activity-Based Customer-Driven Costs
Suppose that Stillwater Designs has two classes of distributors: JIT
distributors and non -JIT distributors. The JIT distributor places small,
frequent orders, and the non -JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product.
Stillwater Designs provides the following information about customer-
related activities and costs for the most recent quarter:
Required:
1. Calculate the total revenues per distributor category, and assign
the customer costs to each distributor type by using revenues as
the allocation base. Selling price for one unit is $150.
2. CONCEPTUAL CONNECTION Calculate the customer cost per
distributor type using activity-based cost assignments. Discuss the
merits of offering the non -JIT distributors a $2 price decrease
(assume that they are agitating for a price concession).
3. CONCEPTUAL CONNECTION Assume that the JIT distributors are simply imposing the frequent orders on Stillwater Designs. No
formal discussion has taken place between JIT customers and
Stillwater Designs regarding the supply of goods on a JIT basis. The
sales pattern has evolved over time. As an independent consultant,
what would you suggest to Stillwater Designs' management?
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