1. Why is the current cost system inadequate? Why is it necessary to report on customer profitability?

2. Develop a cost system for SCE based on Year 2012 data.

a. Identify major activities. (Hint: The major activities in any distribution center are warehousing, shipping, order processing, and administration). Subdivide these major categories into more detailed activities if necessary to improve the accuracy of the cost system.

b. Calculate the cost-driver rate for each activity identified in 2a.

3. Combine your answers to question 2 with the information in Exhibit 4 to calculate the profitability of the average User, Subscriber, and Elite Team member. What explains the difference between the profitability of the different types of customers?

4. What actions should SCE management take based on the cost analysis?

Also, have a quick look at the Saharis.cz (B) case (immediately following the main case) and think about how the additional information could be used to better allocate the call center costs.