1. A recalculation of the service costs for the customer profitability report, showing the new profits (or loss) of selling to the 4 customers

2. What you would do if you were in charge of Johnson Beverage?

Johnson Beverage sells Sports Drinks to Retail store customers - about 20 customers Last year Revenue was $12 million - Sell Sport Drinks (Exhibit 1 Customer Profitability) This is a report that is produced at may companies. Companies want to see which companies they sell to result in the most profit. Many accounting software have a report like this built in. Below is this report for Johnson Beverage Inc (BI) Johnson Beverage is profitable but they want to know which of the companies they sell to brings them the most profit as a percentage Four companies are shown below and then the total for the other 16 customers. The way the report is done now shows that they make the best profit from selling to Midwelon or downtown Retail. Johnson knows the price they charge each customer and the cast of Goods is the same per case for all customers. (See Exhibit 2 below) The Customer Service costs are the unknown per customer, like Overhead. Customer Service costs are Johnson's Costs, they do not charge the customers for these costs. On this report they are calculated as a percent of revenue, 10%. Is this right? Or are some customers really costing Johnson more. Oscars Odd Lots Downtown Retail others Total JBI Net Revenue Cost of Goods Sold Gross Profit Customer Service Costs Customer Profit Profit % Saver Superstore $1,168,000 1,048,000 120.000 116,800 3,200 0.3% $1,192.000 1,048,000 144,000 119,200 24,800 2.1% 137.331 Midwellon $121,520 104,800 16,720 12.152 4,568 3.8% F $454,500 393,000 61,500 45,450 16,050 3.5% % $9,063,980 7,886,200 1,177,780 906,398 271,382 3.0% $12,000,000 10,480,000 1,520,000 1,200,000 320,000 2.7% Oscars Odd Lots $ $ Midwellon 15.19 Downtown Retail $ Others $ Total JBI $ List price is $15.20 per case Cost is $13.10 per case Discounts vary by customer (Exhibit 2 Customer information) Saver Superstore Price per Case $ 14.60 Number of Cases 80,000 Number of Orders 16 Number of Deliveries 110 Miles per Delivery S Expedited Deliveries 10 Sales Visits 12 14.90 80,000 40 ****** 15.15 30,000 30 230 4 90 9 15.06 602,000 394 3,540 400 19 250 25 15.00 800,000 500 4,480 10 2,500 360 44000 2,020 296 Customer Saver Superstore is not happy - they think they are paying too much Customer Servke Cost Detall In addition to COGS Johnson has Customer Service costs of $1.2 million per year - Ilke overhead See Table 1 Currently allocated based on % of revenue Cost $ Product Handling Taking Orders from Customers Delivering the Product Expediting Deliveries Sales visits Total They Run a report of Profitability by Customer See Exhibit 1 672,000 100,000 140,000 198,000 90,000 1,200,000 $ Can you help them using Activity Based costing? TABLE 1 Cost Case 800000 500 Product Handling Taking Orders from Customers Delivering the Product Experditing Deliveries Sales visit Total $672,000 Number of Cases $100,000 Number of Orders $140,000 Number of Deliveries $198,000 Number of Expediting Deliveries $90,000 Sales visit $1,200,000 44800 2500 $0.84 $200.00 $3.13 $79.20 $250.00 360 EXHIBIT 1 Net Revenue Cost of Goods Sold Gross Profit Customer Service Costs Customer Profit Profit % Customer Service Costs Customer Profit Customer Profit % of net revenues) Saver Oscars Superstore 1,168,000 1,048,000 120,000 116,800 3,200 0.3% 75,911 44,089 3.8% Odd Lots 1,192,000 1,048,000 144,000 1,192,000 248,000 2.1% 125,000 19,000 1.6% Downtown Midwellon Retail 121,520 454,500 104,800 393,000 16,720 61,500 12,152 45,450 4,568 16,050 3.8% 3.5% 32,391 43,453 (15,671) 18,047 -12.9% 4% Others 9,063,980 7,886,200 1,177,780 906,398 271,382 3% Total JBI 12,000,000 10,480,000 1,520,000 1,200,000 320,000 2.7% Saver Superstore 80,000 16 550 Oscars Odd Lots 80,000 40 Number of Cases Number of Orders Number of Deliveries Number of Expediting Deliveries Sales visit Total Customer Service Cost Customer Service Cost 67,200 3,200 1,719 792 3,000 75,911 Customer Service Cost 67,200 8,000 23,750 19,800 6,250 125,000 Midwellon 8,000 20 2,200 130 18 Downtown Customer Service Cost Retail 6,720 30,000 4,000 30 6,875 920 10,296 90 4,500 9 32,391 7,600 250 Customer Service Cost 25,200 6,000 2,875 7,128 2,250 43,453 Total JBI 800,000 500 4,480 10 2,500 360 Total Overhead 166,320 21,200 35,219 38,016 16,000 276,755 10 12 25 Johnson Beverage sells Sports Drinks to Retail store customers - about 20 customers Last year Revenue was $12 million - Sell Sport Drinks (Exhibit 1 Customer Profitability) This is a report that is produced at may companies. Companies want to see which companies they sell to result in the most profit. Many accounting software have a report like this built in. Below is this report for Johnson Beverage Inc (BI) Johnson Beverage is profitable but they want to know which of the companies they sell to brings them the most profit as a percentage Four companies are shown below and then the total for the other 16 customers. The way the report is done now shows that they make the best profit from selling to Midwelon or downtown Retail. Johnson knows the price they charge each customer and the cast of Goods is the same per case for all customers. (See Exhibit 2 below) The Customer Service costs are the unknown per customer, like Overhead. Customer Service costs are Johnson's Costs, they do not charge the customers for these costs. On this report they are calculated as a percent of revenue, 10%. Is this right? Or are some customers really costing Johnson more. Oscars Odd Lots Downtown Retail others Total JBI Net Revenue Cost of Goods Sold Gross Profit Customer Service Costs Customer Profit Profit % Saver Superstore $1,168,000 1,048,000 120.000 116,800 3,200 0.3% $1,192.000 1,048,000 144,000 119,200 24,800 2.1% 137.331 Midwellon $121,520 104,800 16,720 12.152 4,568 3.8% F $454,500 393,000 61,500 45,450 16,050 3.5% % $9,063,980 7,886,200 1,177,780 906,398 271,382 3.0% $12,000,000 10,480,000 1,520,000 1,200,000 320,000 2.7% Oscars Odd Lots $ $ Midwellon 15.19 Downtown Retail $ Others $ Total JBI $ List price is $15.20 per case Cost is $13.10 per case Discounts vary by customer (Exhibit 2 Customer information) Saver Superstore Price per Case $ 14.60 Number of Cases 80,000 Number of Orders 16 Number of Deliveries 110 Miles per Delivery S Expedited Deliveries 10 Sales Visits 12 14.90 80,000 40 ****** 15.15 30,000 30 230 4 90 9 15.06 602,000 394 3,540 400 19 250 25 15.00 800,000 500 4,480 10 2,500 360 44000 2,020 296 Customer Saver Superstore is not happy - they think they are paying too much Customer Servke Cost Detall In addition to COGS Johnson has Customer Service costs of $1.2 million per year - Ilke overhead See Table 1 Currently allocated based on % of revenue Cost $ Product Handling Taking Orders from Customers Delivering the Product Expediting Deliveries Sales visits Total They Run a report of Profitability by Customer See Exhibit 1 672,000 100,000 140,000 198,000 90,000 1,200,000 $ Can you help them using Activity Based costing? TABLE 1 Cost Case 800000 500 Product Handling Taking Orders from Customers Delivering the Product Experditing Deliveries Sales visit Total $672,000 Number of Cases $100,000 Number of Orders $140,000 Number of Deliveries $198,000 Number of Expediting Deliveries $90,000 Sales visit $1,200,000 44800 2500 $0.84 $200.00 $3.13 $79.20 $250.00 360 EXHIBIT 1 Net Revenue Cost of Goods Sold Gross Profit Customer Service Costs Customer Profit Profit % Customer Service Costs Customer Profit Customer Profit % of net revenues) Saver Oscars Superstore 1,168,000 1,048,000 120,000 116,800 3,200 0.3% 75,911 44,089 3.8% Odd Lots 1,192,000 1,048,000 144,000 1,192,000 248,000 2.1% 125,000 19,000 1.6% Downtown Midwellon Retail 121,520 454,500 104,800 393,000 16,720 61,500 12,152 45,450 4,568 16,050 3.8% 3.5% 32,391 43,453 (15,671) 18,047 -12.9% 4% Others 9,063,980 7,886,200 1,177,780 906,398 271,382 3% Total JBI 12,000,000 10,480,000 1,520,000 1,200,000 320,000 2.7% Saver Superstore 80,000 16 550 Oscars Odd Lots 80,000 40 Number of Cases Number of Orders Number of Deliveries Number of Expediting Deliveries Sales visit Total Customer Service Cost Customer Service Cost 67,200 3,200 1,719 792 3,000 75,911 Customer Service Cost 67,200 8,000 23,750 19,800 6,250 125,000 Midwellon 8,000 20 2,200 130 18 Downtown Customer Service Cost Retail 6,720 30,000 4,000 30 6,875 920 10,296 90 4,500 9 32,391 7,600 250 Customer Service Cost 25,200 6,000 2,875 7,128 2,250 43,453 Total JBI 800,000 500 4,480 10 2,500 360 Total Overhead 166,320 21,200 35,219 38,016 16,000 276,755 10 12 25