Speedy Delivery is a medium-sized parcel-delivery firm. Lately the firm has been finding it difficult to...

   

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Speedy Delivery is a medium-sized parcel-delivery firm. Lately the firm has been finding it difficult to retain existing customers 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 Speedy Delivery, and they are able to offer expert services in all areas of delivery. The senior managers of Speedy 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 services: same-day delivery, overnight dellvery and international delivery. A number of strategic options are proposed at this meeting. Carmen Jones, 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. Jack North, the managing director, has suggested that the firm should continue to offer the full range of services, but only to corporate customers. He suggests that small customers should be dropped. Leslie Quinn, the finance manager, proposes that the decision be deferred until the profitability of the three main areas of the business, and of corporate and small customers, is investigated. In preparation for the next meeting, Quinn prepared some information for last year: - The sales revenues and direct costs of the three services offered by Speedy Delivery during that year were as follows: Overnight delivery $5 400 000 Same-day delivery International delivery Sales revenue $1800 000 $4 600 000 Direct costs 1000 000 3 800 000 3 200 000 . The percentage of sales revenue of the three services to the two customer groups was calculated as follows: Small customers Corporate customers Same-day delivery 40 60 Overnight delivery 15 85 International delivery 50 50 • 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: Activity Activity cost per unit of activity driver Process invoice $200 per monthly invoice Receive cheque $50 per cheque Handle disputed invoice $300 per dispute Follow up overdue account $400 per overdue account Handle customer complaints $160 per complaint Investigate delivery $400 per investigation Make initial sales call to corporate customers $900 per initial call Make credit check on corporate customers $700 per check - The number of customer-driven activities consumed by the two customer groups was determined: Activity Small customers Corporate customers No. of invoices processed 8000 500 No. of cheques received 8000 600 No. of invoices disputed 200 100 No. of customer complaints 120 70 No. of delivery investigations 90 37 No. of overdue accounts followed up 300 50 No. of initial sales calls to corporate customers 70 No. of credit checks on corporate customers 40 Promotions to attract new small customers $100000 Advertisements to attract new corporate customers $500000 Required: 1. Calculate the contribution to profits of the three types of services offered by Speedy Delivery during th past year. 2. Prepare an income statement and calculate the profitability of the two customer groups. 3. Discuss the relative profitability of the three products and the two customer groups. 4. Based on your financial analysis, do you agree with the recommendations of the overnight deliver manager, or of the managing director? Speedy Delivery is a medium-sized parcel-delivery firm. Lately the firm has been finding it difficult to retain existing customers 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 Speedy Delivery, and they are able to offer expert services in all areas of delivery. The senior managers of Speedy 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 services: same-day delivery, overnight dellvery and international delivery. A number of strategic options are proposed at this meeting. Carmen Jones, 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. Jack North, the managing director, has suggested that the firm should continue to offer the full range of services, but only to corporate customers. He suggests that small customers should be dropped. Leslie Quinn, the finance manager, proposes that the decision be deferred until the profitability of the three main areas of the business, and of corporate and small customers, is investigated. In preparation for the next meeting, Quinn prepared some information for last year: - The sales revenues and direct costs of the three services offered by Speedy Delivery during that year were as follows: Overnight delivery $5 400 000 Same-day delivery International delivery Sales revenue $1800 000 $4 600 000 Direct costs 1000 000 3 800 000 3 200 000 . The percentage of sales revenue of the three services to the two customer groups was calculated as follows: Small customers Corporate customers Same-day delivery 40 60 Overnight delivery 15 85 International delivery 50 50 • 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: Activity Activity cost per unit of activity driver Process invoice $200 per monthly invoice Receive cheque $50 per cheque Handle disputed invoice $300 per dispute Follow up overdue account $400 per overdue account Handle customer complaints $160 per complaint Investigate delivery $400 per investigation Make initial sales call to corporate customers $900 per initial call Make credit check on corporate customers $700 per check - The number of customer-driven activities consumed by the two customer groups was determined: Activity Small customers Corporate customers No. of invoices processed 8000 500 No. of cheques received 8000 600 No. of invoices disputed 200 100 No. of customer complaints 120 70 No. of delivery investigations 90 37 No. of overdue accounts followed up 300 50 No. of initial sales calls to corporate customers 70 No. of credit checks on corporate customers 40 Promotions to attract new small customers $100000 Advertisements to attract new corporate customers $500000 Required: 1. Calculate the contribution to profits of the three types of services offered by Speedy Delivery during th past year. 2. Prepare an income statement and calculate the profitability of the two customer groups. 3. Discuss the relative profitability of the three products and the two customer groups. 4. Based on your financial analysis, do you agree with the recommendations of the overnight deliver manager, or of the managing director?

Answer rating: 100% (QA)

Answer 1 Calculation of Contribution of the three types of services offered by Speedy Delivery during the past year 2 Income Statement showing Profita... View the full answer