Pantas Delivery is a medium-sized parcel-delivery firm. Lately, the firm has been finding it difficult to retain existing customer and to gain new ones. The mergers between some of the major delivery firms have given those firms tremendous competitive advantages. The big firms are now far more cost-competitive than Pantas Delivery, and they are able to offer expert services in all areas of delivery.

The senior manager of Pantas Delivery have called a crisis meeting to consider what they can do to survive in this newly structured market. Currently, the firm offers three types of service: same-day delivery, overnight delivery and international delivery. A number of strategic option are proposed at this meeting.

Cahaya Johari, the overnight delivery manager, argues that the firm should offer only overnight delivery, as this is the potential growth area of the future and it currently generates the most revenue for the firm. Junaidi Nordin, the managing director, has suggested that the firm continue to offer the full range of services, but only to corporate customers. He suggests that small customers should be dropped. Lutfi Qayyum, the finance manager, proposes that the decision be deferred until the profitability of the three main areas of business, and of corporate and small customers, is investigated.

In preparation for the next meeting Lutfi prepared some information for last year:

The sales revenues and direct costs of the three services offered by Pantas Delivery during that year were as follows.

The percentage of sales revenue of the three services to the two customer groups was calculated as follows:

Customer-driven activities were identified, the total cost of each activity during the year was determined, and the activity cost per unit of activity driver was calculated:

The number of customer- driven activities consumed by the two customer groups was determined.

Required:

1. Calculate the contribution to profits of the three types of services offered by Pantas delivery during the past year.
2. Prepare an income statement and calculate the profitability of the two customer groups.
3. Refer to your computations in (a) and (b) above. Discuss the relative profitability of the two Customer groups.
4. Based your financial analysis, do you agree with the recommendation of the overnight delivery manager, or the managing director? Briefly explain Why.

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Sales revenue Direct costs Same-day delivery RM 900,000 RM 500,000 Overnight delivery RM 2,700,000 RM 1,900,000 International delivery RM 2,300,000 RM 1,600,000 Same-day delivery Overnight delivery International delivery Small customers 40% 15% 50% Corporate customers 60% 85% 50% Activity Process invoice Receive cheque Handle disputed invoice Follow up an overdue account Handle customer complaints Investigate delivery Make initial sales call to corporate customers Make credit check on corporate customers Activity cost per unit of activity driver RM 100 per monthly invoice RM 25 per cheque RM 150 per dispute RM 200 per overdue account RM 80 per complaint RM 200 per investigation RM 450 per initial call RM 350 per check Activity No. of invoices processed No. of cheques received No. of invoices disputed No. of customer complaints No. of delivery investigations No. of overdue accounts followed up No. of initial sales calls to corporate customers No. of credit checks on corporate customers Promotions to attract new small customers Advertisements to attract new corporate customers Small customers 8,000 8,000 200 120 90 300 RM 50,000 Corporate customers 500 600 100 70 37 50 70 40 RM 250,000 Sales revenue Direct costs Same-day delivery RM 900,000 RM 500,000 Overnight delivery RM 2,700,000 RM 1,900,000 International delivery RM 2,300,000 RM 1,600,000 Same-day delivery Overnight delivery International delivery Small customers 40% 15% 50% Corporate customers 60% 85% 50% Activity Process invoice Receive cheque Handle disputed invoice Follow up an overdue account Handle customer complaints Investigate delivery Make initial sales call to corporate customers Make credit check on corporate customers Activity cost per unit of activity driver RM 100 per monthly invoice RM 25 per cheque RM 150 per dispute RM 200 per overdue account RM 80 per complaint RM 200 per investigation RM 450 per initial call RM 350 per check Activity No. of invoices processed No. of cheques received No. of invoices disputed No. of customer complaints No. of delivery investigations No. of overdue accounts followed up No. of initial sales calls to corporate customers No. of credit checks on corporate customers Promotions to attract new small customers Advertisements to attract new corporate customers Small customers 8,000 8,000 200 120 90 300 RM 50,000 Corporate customers 500 600 100 70 37 50 70 40 RM 250,000

Answer rating: 100% (QA)

1 Contribution to profit of three types of services offered 2 Income statement and profitability 3 T... View the full answer