Objectives

• Design an Activity-Based Costing system for a supply chain
• Analyze a business case, recognizing how to deal with customers based on their contribution to cost, and
• Use customer cost and profitability data to make strategic decisions

CASE: Lynch, L. J. (2009). Johnson Beverage, Inc.Ivey Publishing.

Question1. Use the information in case Exhibits 1 and 2 and other necessary data in the case on activities and costs to develop an Activity-Based Cost system for JBI,

i.e., how much each activity is costing JBI for each customer. Excel templates are available (Sheets 1 and 2) to guide your work.

Question 2 Use this ABC system to determine customer profitability for Saver Superstore, Oscar's Oddlots, Midewellen Supermarket, and Downtown Retail (Sheet 2 of the provided template)

Question3Use your results from Sheet 2 to compare customer costs and profits of the traditional costing system to the ABC system you have designed in (1). According to your ABC system, would you recommend entertaining a lower price to Saver SuperStore?

TEMPLATES

Sheet ABC SYSTEM

Customer Profitability of Four Customers Using ABC System to Allocate Customer Service Costs

Saver Superstore Oscar's OddLots Midwellen Supermarket Downtown Retail

Net revenues 1168000 1192000 121520 454500

Cost of goods 1048000 1048000 104800 393000

Gross margin 120000 144000 16720 61500

Customer Service Costs (from Sheet 1 and Exhibit 2):

Product Handling 0.84 X 80000 = 672000.84 X 80000 = 672000.84 X 8000 = 67200.84 X 30000 = 25200

Taking orders from customers - - - -

Delivering the product - - - -

Expediting deliveries (other than automobile) - - - -

Sales visits to customers - - -

Total customer service costs for each customer - - - -

Customer Profit (for each customer)- - - -

Customer profit (% of net revenues) - for each customer-- - -

Objectives

• Design an Activity-Based Costing system for a supply chain
• Analyze a business case, recognizing how to deal with customers based on their contribution to cost
• Assessing customer profitability
• Using customer cost and profitability data to make strategic decisions

Customer Profitability of Four Customers Using ABC System to Allocate Customer Service Costs Midwellen Saver Superstore Oscar's OddLots Downtown Retail Supermarket Net revenues 1168000 1192000 121520 454500 Cost of goods 1048000 1048000 104800 393000 Gross margin 120000 144000 16720 61500 Customer Service Costs (from Sheet 1 and Exhibit 2): Product Handling 0.84 X 80000 = 67200 0.84 X 80000 = 67200 |0.84 X 8000 = 6720 0.84 X 30000 = 25200 Taking orders from customers Delivering the product Expediting deliveries (other than automobile) Sales visits to customers Total customer service costs for each customer Customer Profit (for each customer) Customer profit (% of net revenues) - for each customer