Figure Four is a distributor of pharmaceutical products. Its ABC system has five activities: Activity Area Cost

Question:

Figure Four is a distributor of pharmaceutical products. Its ABC system has five activities:

Activity Area Cost Driver Rate in 2006

1. Oder processing .............. $40 per order

2. Line - item order ............ $3 per line item

3. Store deliveries ............... $50 per store delivery

4. Carton deliveries ............ $1 per carton

5. Shelf stocking ................ $16 per stocking hour

Rick Flair, the controller of Figure Four, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the Ma and Pa single-store distribution market. Two customers are used to exemplify the insights available with the ABC approach. Data pertaining to these two customers in August 2006 are as follows:


Figure Four is a distributor of pharmaceutical products. Its ABC

Required
1. Use the ABC information to compute the operating income of each customer in August 2006. Comment on the results.
2. Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. Figure four reports operating losses of $21,247 for the bottom 40% of its customers. Make four recommendations that you think Figure Four should consider in light of this new customer-profitability information?

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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Cost Accounting A Managerial Emphasis

ISBN: 978-0131495388

12th edition

Authors: Charles T. Horngren, Srikant M. Datar, George Foster

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