ZZZ Corp. manufactures foam beds for several retailers. Total sales are split fairly evenly between small retailers
Question:
ZZZ Corp. manufactures foam beds for several retailers. Total sales are split fairly evenly between small retailers and big box stores, and the company receives the same price from both types of retailers. Management believes activity levels within the smaller retailers justify adding more resources, including a new order clerk and an additional salesperson. Adam, head of sales disagrees with this strategy. Using the data provided, complete the following;
- Assign costs to the two customer groups using activity-based costing (ABC)
- Write a memo to management with YOUR recommendation, include in your memo, why the company should be using ABC.
Small Retailers:
Total beds purchased (units) 70,000
Number of retailers 265
Number of orders placed 2,250
Number of sales calls 525
Total manufacturing costs $42,000,000
Total order filling costs $1,414,000
Total sales force costs $700,000
Big Box Stores:
Total beds purchased (units) 75,000
Number of retailers 10
Number of orders placed 30
Number of sales calls 12
Total manufacturing costs $45,000,000
Total order filling costs $1,515,000
Total sales force costs $750,000
Expert Answer:
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
