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:

	JIT Distributors		Non-JIT Distributors
Sales orders	900		90
Sales calls	70		70
Service calls	350		175
Average order size	550		5,500
Manufacturing cost/unit	$125		$125
Customer costs:
Processing sales orders	$3,230,000
Selling goods	1,120,000
Servicing goods	1,050,000
Total	$5,400,000

Required:

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. Round calculations to the nearest dollar.

	JIT		Non-JIT
Sales (in units)	495,000		495,000
Sales	$74,250,000		$74,250,000
Allocation	$2,700,000		$2,700,000

2. Conceptual Connection: Calculate the customer cost per distributor type using activity-based cost assignments. Round the interim calculations to the nearest dollar.

	JIT		Non-JIT
Ordering costs	$2,936,700		$293,670
Selling costs	$560,000		$560,000
Service costs	$700,000		$350,000
Total	$4,196,700		$1,203,670

For non JIT distributors by how much can the price be decreased without affecting customer profitability? Round your answer to the nearest cent. (<====NEED HELP ON THIS ONE.)

$ per unit

*Note: For the Non JIT distributor price decrease, Non JIT distributors cost less to service than the JIT distributors for the same number of sales and perhaps should be charged less. One way to find how much the price can be decreased is to divide the savings from the difference in methods by sales in units.