Generic Inc. is a distributor of pharmaceutical products. Its ABC system has five activities: Activity Area Cost
Question:
Generic Inc. is a distributor of pharmaceutical products. Its ABC system has five activities:
Activity Area | Cost Driver Rate in 2018 |
1. Order processing | S40 per order |
2. Line-item ordering | 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 Generic, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the mom-and-pop 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 2018 are as follows:
Required
1. Use the ABC information to compute the operating income of each customer in August 2018. Comment on the results and what, if anything, Flair should do.
2. Flair ranks the individual customers in the mom-and-pop single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. Generic reports operating losses of $21,247 for the bottom 40% of its customers. Make four recommenda tions that you think Generic should consider in light of this new customer profitability information.
DistributionThe 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...
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134453736
8th Canadian Edition
Authors: Srikant M. Datar, Madhav V. Rajan, Louis Beaubien