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business
cost management strategic

Cost Management Strategies For Business Decisions 3rd Edition Michael W. Maher, Frank Selto Ronald W. Hilton - Solutions

2.32 Castle Music seeks to trace its marketing costs to each of its two major customer types, record clubs and retail stores. It employs salespeople in all major world markets to serve retail stores. Account executives serve each of eight major record clubs in Europe and North America. In addition,
2.31 Outrageous Promotions (OP) is interested in tracing its promotion design costs to each of its three major customer types, groceries, drug stores, and discount stores. OP designs some promotions itself and outsources the other designs. Use the following information to estimate promotion design
2.30 Carousel Shipping (CS) wishes to trace its distribution costs to each of its four customer types, alpha. beta, chili, and dog. CS delivers some shipments itself and outsources the delivery of others. Use the fol- lowing information to estimate distribution costs per customer CS Customer
2.29 Refer to Exercise 6.28. HRS desires to increase its return on sales to 20 percent. What amount of profit enhancement is required to meet this profitability target at the same level of sales?
2.28 Homeland Research Services (HRS) conducts personnel buckground checks and supplier reliability research for banks and manufacturers. Using the following information, prepare a customer profitability statement: HRS Profitability Contribution margin ratio Revenues... Customer sales 10 Sales of:
2.27 Refer to Exercise 6.26. LaBron desires to increase its return on sales to 30 percent. What amount of profit enhancement is required to meet this profitability target at the same level of sales?
6.26 LaBron sells two products, windshield wipers and sunshades, to two types of customers, grocery and auto parts stores. Using the following information, prepare a customer profitability statement: LaBron Product Profitability Total Sunshades Windshield Wipers Contribution margin ratio 70.0%
6.25 Refer to Exercise 6.24. Daytona desires to increase its return on sales to 25 percent. What amount of profit enhancement is required to meet this profitability target at the same level of sales?
6.24 Daytona Company produces, sells, and distributes two products, A-7 and B-2, to two types of cus- tomers, urban and rural. Using the following information, prepare a customer profitability statement: B-2 Daytona Product Profitability Contribution margin ratio Revenues....... Customer sales to
6.23 Data mining and data warehousing techniques are potential tools to use to analyze customer profitabil ity. Many companies have had disappointing results using them, however, despite great expense and effort in building data warehouses. Search the Internet for information about data mining and
6.22 Building a customer database can be expensive. Free information is available in the United States from the Census Bureau's Web site (www.census.gov). Visit this site (particularly the Economie Census link), and pre- pare a short report describing the type of information available that might be
6.21 An Internet search of the key phrase "customer profitability" results in thousands of "hits," many of which are Web sites of companies seeking to sell software or consulting services. Choose a sample of five of these Web sites and write a memo that evaluates the information they present and
6.20 "Investing in customer profitability analysis will cost millions and that's just to get started. I just can't justify that level of spending when our bottom line is so thin." "I challenge that expense-only thinking. The nature of busi- ness is spending money to make money. How else are we
6.19 At your company's monthly marketing strategy meeting. the director of customer satisfaction happily reports that 80 percent of customers are at least "satisfied" and half of those are "delighted" with the company's products and services. This is good news because delighted customers are much
6.18 A business publication reported across-the-board declines in customer satisfaction in the airline, banking, retailing. hotel, and telecommunication industries, yet most compa nies in these industries were profitable. How do you explain this apparent mismatch of customer satisfaction. and
6.17 Deregulation of telecommunication in the United States has brought increased competition among long-distance telephone service providers, such as AIA 1. Sprim, and MCI Worldcom. Initially, these companies offered up to $50 to customers to switch to their service, but these offers now are rare.
6.16 Federal Express reportedly segments customers into "good." "bad," and "ugly" categories." It gives good cus- tomers, who spend much and demand little service or mar- keting, preferential treatment, charges bad customers, who spend little but are expensive to serve, higher shipping charges; and
6.15 Many financial services companies regularly offer credit cards to college students who have a low income and no credit history. On the face of it, this practice seems con- trary to that used by many banks, such as Bank of America. to segment credit-card customers by income, risk, services, and
6.14 A recent article lauded a major e-commerce supplier for its extraordinary commitments to product and service inno- vation and customer service. The article argued that these commitments are paying off by citing as proof higher than average contribution margins and growth in sales over the past
6.13 Professor Johnson argues that ABC techniques have been oversold. Rather than focusing on reducing costs of pro- duction or serving customers, he argues, firms should strive to improve customer satisfaction because doing so will increase profitability more than cost cutting will." Critically
6.12 An Internet search of the key phrase "customer profitabil- ity" will result in thousands of "hits," many of which are Web sites of companies seeking to sell software or con- sulting services. If you were looking for assistance in designing and implementing customer profitability analy sis, how
6.11 There's no such thing as product profitability, only cus- tomer profitability." Discuss.
6.10 How might you apply the recommendations in Chapter I for leading change when implementing customer-profitability improvements?
6.9 Describe several types of improvements that an organiza- tion could make to increase its customer profitability.
6.8 Describe typical qualitative factors to consider when eval- uating alternatives to improve customer profitability.
6.7 Describe how customer profitability analysis can be related to ABC and ABM.
6.6 Describe the trade-offs analysts often must make when gath- ering and evaluating information about customer-related resources, activities, and costs.
6.5 List and describe each major type of customer-related resource and the activities that drive their use, as illustrated by the analysis of Health Wave.
6.3 Explain the point made by Exhibit 6-1. 6.4 List typical objectives of customer profitability analysis.
6.2 How are product-line and customer profitability measures similar and different based on the discussions in this chapter.
6.1 Review and define each of the chapter's key terms.
5.54 Ogden Bank has been in the consumer-lending business for more than 100 years. Competitors recently have taken a considerable portion of its market share. In addition, its remaining customers have com- plained that the bank's loan-approval process is too slow and that finding out the status of
5.53 "ASP Business Plan Estimates 60 FTE to be Eliminated in Consolidations" trumpeted the headline in the Silver & Gold Record, the university's faculty and staff newsletter. Administrators scrambled to jus- tify the $35 million project and reassure worried staff who faced the loss of 60 full-time
5.52 TransGlobe Airways (TGA) is an embattled US airline fighting to gain market share from its much larger, traditional competitors, such as United Airlines. Delta, and American Airlines, as well as suc- cessful discount airlines such as Southwest Airlines. TGA's current share of the US market is
5.51 An alternative to using ABM to identify opportunities for process improvement is to use benchmarking information to identify where an organization falls short of competitors and best practices. At 2 percent of sales. Cummins Engine's overall accounting costs were twice as high as companies
5.50 Rio Vista Manufacturing, Inc., manufactures speedboats and canoes. Information regarding its resources for the month of August follows: Resources Used Resources Supplied Marketing $28,000 $30,000 Depreciation 24,000 40,000 Outside contracts 12,000 12,000 Materials 60.000 60.000 Setups 14,000
5..49 Gavin Corporation manufactures automobile parts. Information regarding its resources for the month of March follows: Resources Used Resources Supplied Parts management Energy $ 3,000 $ 3,500 5,000 5,000 Quality Inspections 4,500 5,000 Long-term labor 2,500 3,500 Short-term labor 2,000 2,400
5.48 Recruitment Activity Personnel Recruiting a medical technologist for a hospital laboratory is a multistep process that includes the fol- lowing activities. Recruitment Cost Hourly Hours Rate Spent Review need to retain position Revise job description as needed HR director $40 4 $ 160 HR
5.47 Now that local phone service in the United States is open to competition, some telephone service providers have begun purchasing individual phone services at a discount from the traditional phone companies and reselling them to customers who have been denied service because of poor credit.
5.46 Consider two types of health care organizations, (1) a campus health care center where you will be treated for influenza and (2) a hospital where you will have major surgery. Required Form small groups to respond to the following items.a. Identify the activities to serve a patient and clean up
5.45 Team focus. Consider two types of restaurants, (1) a favorite place for students to go in the evening and (2) a place to have a meeting. Requireda. Identify the activities to prepare a meal, serve a customer, and clean up after the meal has been served.b. For each activity you list in
5.44 You have been hired as a consultant for Whoopee, a company that designs websites. Whoopee has asked for your advice in assessing customers' perceptions of the value of its products. You collect the follow- ing information about Whoopee's design of a website for a small co-op grocery store.
5.43 Refer to the information in and format of Exhibit 5-2. PMI is considering producing one product that is similar to the MegaBurger novelty toys but for another customer. This product will be larger and more complex than the MegaBurger products, and it will be sold in retail toy stores
5.42 Refer to the information and format of Exhibit 5-2. PMI is considering producing one product simi- lar to the MegaBurger novelty toys but for another customer. It will ship the product to the customer immediately upon completion. The estimates for this new product follow. Assume that PMI's
5.41 Refer to the information in and format of Exhibit 5-2. PMI is considering producing one product similar to the MegaBurger novelty toys but for another customer. It will ship the product to the customer imme- diately upon completion. The estimates for this new product follow. Assume that PMI
5.40 Robert Lutz, when president and chief operating officer at the former Chrysler (now DaimlerChrysler). was determined to replace the company's old cost-management system with one that could report costs by process and could separate value-added from non-value-added activities. After reading an
5.39 Selected information about several activities for Quality Printing follows: Resources Used Resources Supplied Cost-Driver Rate Cost-Driver Volume Material $50,000 $ 5 10.000 Energy 7,000 15 400 Setups 3,500 50 60 Purchasing 3.000 40 70 Customer service 3.200 50 60 Long-term labor 12,000 40 250
5.38 Information about two activities for Systems Integrators, Inc., follows: Cost-Driver Volume Resources Used Resources Supplied Cost-Driver Rate Machine setups $10,000 $200 per run Administrative 3.500 300 per job Required Compute the unused capacity for each activity. 30 runs 11 jobs
5.37 Information about two activities for Northern Products, Inc., follows: Resources Supplied Cost-Driver Rate Energy $7,300 $12 per machine hour Marketing 5,500 25 per sales call Required Resources Used Cost-Driver Volume 500 machine hours used 200 sales calls made Compute the unused capacity for
5.36 Review the information in Exhibit 5-2 for PMI. After further discussion, PMI's management is willing to lower the required return on sales (ROS) to 16 percent (from the original 20 percent). Required How much will this impact the monthly cost-reduction targeta. In dollars?b. As a percent of
5.35 Review the information in Exhibit 5-2 for PMI. Assume that the total number of units to be sold each month remains the same but that the sales price increases to $18 per unit (from the original sales price of $17 per unit). Required How much will this impact the monthly cost-reduction targeta.
5.34 Review the information in Exhibit 5-2 for PMI. Assume that the sales price of $17 per unit remains the same but that the total units to be sold each month increases to 21,000 (from the original pro- posal of 20,000 units). (Assume that the only costs that will change are the costs driven by
5.33 Identify a non-value-added activity in your workplace or school. Requireda. Identify the root cause of performing the non-value-added activity.b. Does identifying the root cause suggest a way to eliminate the non-value-added activity?c. What complications can you anticipate in making this
5.32 Continue Exercise 5.31. Requireda. b. Calculate subtotals for each value-added score (1.2, 3, 4, and 5). If the company could eliminate low-valued activities (by your definition), how much could it save? Build your own spreadsheet. Develop a spreadsheet to answer (a) based on data from
5.31 Continue the analysis in Exercise 5.30. The hours spent on various activities are for a five-person claims-processing team. Each team member earns on average $20 per hour (including benefits). Required What is the cost of each activity?
5.30 Consider the activities and subactivities in Exercise 5.29. Required Form small groups to rate cach activity on a value-added scale from 1 to 5, with 5 being the most highly valued from an external customer's perspective.
5.29 Michigan Insurance. Inc. (MII), an insurer of small businesses, has a claims-processing department that receives, processes, and refers casualty and property loss claims to insurance adjusters for resolution. Approximately half of the claims arrive by standard mail; the other half are phoned
5.28 Continue Exercise 5.27. Required Calculate subtotals for cach value-added score (1. 2. 3. 4. and 5). If the company could eliminate low- valued activities (by your definition), how much cost could it save?
5.27 Continue the analysis in Exercise 5.26. The hours spent on various activities are for a five-person ware- housing team. Fach team member earns on average $16 per hour (including benefits). Required What is the cost of each activity?
5.26 Consider the activities and subactivities in Exercise 5.25. Required Form small groups to rate each activity on a value-added scale from 1 to 5. with 5 being the most highly valued from an external customer's perspective.
5.25 Loomis Distribution Company (LDC) is a distributor of soft drinks. It receives products from beverage manufacturers (e.g., Coca Cola) and ships them to retail outlets (e.g., convenience stores and supermarkets). Required The following activities and subactivities of LDC's warehousing process
5.24 Describe the four steps of ABC and the three additional steps of ABM.
5.23 Label the following steps as appropriate for ABC and for ABM. List them in the proper order starting with the ABC activities.a. Calculate a cost-driver rate.b. Score cach activity as adding high or low value as perceived by the customer.c. Assign activity costs to goods and services.d.
5.22 Listed here are four activities that some students undertake to prepare for an exam. 1. Gather study materials. 2. Organize study materials. 3. Organize support materials. 4. Study. Required Create at least two subactivities for each of the four activities and assign a value score of 1 to 5 (5
5.21 Your boss sent the following e-mail this morning: "Today I am announcing a 10 percent reduction in spending in every department, effective immediately. We must improve prof- itability, and this is the quickest way to improve the bot- tom line. I assure you that every department will share the
5.20 Connecticut Mutual Life Insurance offered a lucrative buyout plan to its 1,675 workers. About 900-more than twice the anticipated number-accepted forcing it to fill 400 vacated positions. Senior employees were the ones who left, and the company brought in new entrants at the lower end of the
5.19 Explain the following comment: "Cost cutting has become the holy grail of corporate management, but what helps the financial statement up front can end up hurting it down the road."
5.18 Eastman Kodak Co. expected to save thousands of dollars a year when it laid off Maryellen Ford in a companywide downsizing. Within weeks, however, it was paying more for the same work. A local contractor that gets much of its work from Kodak snapped up Ms. Ford, a computer-aided designer and
5.17 According to several writers, corporate America whacked away at labor costs throughout the 1990s. Corporations tamed unions and laid off millions of hourly workers, yet multitudes of US companies still cannot compete with their international rivals, and large operations such as AT&T. General
5.16 "Come on, be serious. Some of these activities that you have identified as non-value-added just cannot be elimi- nated. We have to send monthly reports to corporate head- quarters, and we need to file tax return information quar- terly. This ABM analysis doesn't seem to work in the real
5.15 You have been hired as a consultant to improve a hospi- tal's patient admission process. Assume that you could describe this process using 100 small activities or 10 broader activities. How would you decide how many activities to use?
5.14 "The cost of repairing all these defective products ist killing us. We should hire more highly qualified employ- ees who won't make so many mistakes and who can figure out how to improve our processes so that mistakes are less likely." Write a memo explaining the trade-offs involved with this
5.13 Is it fair to assume that all individuals in an organization welcome the opportunity to improve processes by elimi- nating non-value-added activities? Explain.
5.12 Must ABM information be 100 percent accurate to be use- ful? Explain.
5.11 Why might individuals resist ABM?
5.10 What is the difference between a pilot project and a sys- temwide project?
5.9 How do organizations reduce spending by eliminating non-value-added activities? Is spending reduction the only result of eliminating non-value-added activities?
5.8 What are the questions to ask to determine whether an activity adds customer value?
5.7 Does eliminating non-value-added activities necessarily eliminate waste?
5.6 What is the relationship between non-value-added activities and waste?
5.5 What are examples of value-added and non-value-added activities?
5.4 What are the advantages and disadvantages of using knowl- edge about current processes to evaluate future processes?
5.3 What are alternatives to reducing process costs to meet tar- get costs?
5.2 How can ABC and target costing be used together to moti- vate ABM?
5.1 What do ABC and ABM have in common, and how do they differ?
4.63 Huge Company's tooling business unit (TBU) manufactures metal and carbon-fiber parts for the com- pany's major products. TBU's principal focus in recent years has been to schedule its resources properly. but its manager is concerned that the current method of costing the unit's work is causing
4.62 Insurance companies and the federal government are restricting reimbursements to health care facilities and causing these facilities to seek cost reductions and more accurate tracing of costs without reducing the quality of care. Marian Rodriguez, the administrator of Community Hospital, is
4.61 ABC in its modern form was developed largely in the United Kingdom and United States. As a result, ABC might reflect certain cultural norms about business management that are common to these countries but are not worldwide practice. At least one article has contrasted US and French approaches
4.60 Search your library or the Internet for a recent article on an organization's experiences using activity- based costing. Required Prepare a short report that includes:a. A description of the organization (economic sector, size, international scope, etc.).b. The reasons the organization used
4.59 Refer to the previous problem. Requireda. Compute the total per-unit costs as these costs were computed in Exhibit 4-6.b. Marketing Solutions is paid $5 per completed survey and $2 per completed sales call. Prepare a profitability report similar to the one in Exhibit 4-7. Should Marketing
4.58 Marketing Solutions is a regional provider of telemarketing surveys and sales for non-profit organiza- tions. The basic unit of service is a completed survey or sales call. Assume that all telemarketing labor is paid hourly. Supervisory labor is salaried. The following are data from a recent
4.57 Refer to problem 4.57. Requireda. Compute the total and per-unit costs using a format similar to the one in Exhibit 4-6.b. Intellig receives a sales price of $30 each for board A and $30 each for board B. Prepare a profitability report similar to the one in Exhibit 4-7. Should Intellig
4.56 Refer to problem 4.55. You have just discovered an error in counting the sales of fishing rods. Sporti Gus actually sold only 8 fishing rods, not 10 (the other two sales were actually rifles). Requireda. Using this new information, recompute the total and unit costs for fishing rods for June
4.55 An ABC team at Sporti Gus, a sporting goods store, identified the following data. These amounts exclude the cost of the merchandise itself.Sporti Gus' management wants you to compute the total cost and unit cost of two products for the month of June, which had the following level of
4.54 Refer to problem 4.52. Management of Happy Surgeries wants to compare the unit-based cost of eye surgery and hip replacement to its full cost. Requireda. Compute the total costs of each product for the month of March using the unit-based cost approach described in the chapter appendix.b.
4.53 Refer to problem 4.52. You have just discovered an error in data reporting for eye surgeries. The number of eye surgeries during March was 60, not 50. The extra eye surgeries had been misclassified as colonoscopies. Requireda. Using this new information, recompute the total and unit costs for
4.52 An ABC team at Happy Surgeries, an outpatient surgery center that performs 25 different types of sur- geries, identified the data shown below for a typical month (excluding costs of surgeons and anesthesiol- ogists). The ABC team learned that surgeries are not performed in batches, so there
4.51 Refer to problem 4.49. The company's management wants to compare the unit-based cost of each prod- uct to its full cost. Requireda. Compute the total costs of each product for the month of July using the unit-based cost approach. described in the chapter Appendix.b. Repeat requirement (a), but
produce it?
4.50 Refer to problem 4.49. You have just discovered that the product manager of product A has been less than honest in reporting the number of direct-labor hours used. In checking the payroll records, you dis- cover that 2.000 direct-labor hours ($20.000 direct-labor costs) actually were used in

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