10:29 AM Tue 12 Jan web.whatsapp.com 2 of 4 QUESTION 3 Pantas 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 Pantas Delivery, and they are able to offer expert services in all areas of delivery. The senior managers of Pantas 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: immediate delivery, Next Day delivery and Weekly delivery. A number of strategic options are proposed at this meeting. Encik Rayyan, the Next Day delivery manager, argues that the firm should offer only Next Day delivery, as this is the potential growth area of the future and it currently generates the most revenue for the firm. Cik Kausar, the managing director, has suggested that the firm should continue to offer the full range of services, but only to corporate customers. She suggests that small customers should be dropped. Encik Harith, the finance manager, proposes that 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, Encik Harith prepared some information for last year. The sales revenues and direct costs of the three services offered by Pantas Delivery during that year were as follows: Sales revenue Immediate delivery RM 900,000 Next Day delivery Weekly Delivery RM 2,700,000 RM 2,300,000 Direct costs RM 500,000 RM 1,900,000 RM 1,600,000 The percentage of sales revenue of the three services to the two customer groups was calculated as follows: Immediate delivery Next Day delivery Weekly delivery Percentage of sales revenue Small customers Corporate customers 40 60 15 85 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: 100% 10:29 AM Tue 12 Jan 3 of 4 web.whatsapp.com Process Invoice Receive cheque Activity Handle disputed invoice Follow up an overdue account Handle customer complaints Investigate delivery Make initial sales call to corporate customers Make credit check on corporate customers Activity cost per unit of activity driver RM 100 per monthly invoice RM 25 per cheque RM 150 per dispute RM 200 per overdue account RM 80 per complaint RM 200 per investigation RM 450 per initial call RM 350 per check The number of customer-driven activities consumed by the two customer groups was determined: Activity No of invoices processed No of cheques received No of invoices disputed No of customer complaints No of delivery investigations No of overdue accounts followed up No of initial sales calls to corporate customers No of credit checks on corporate customers Promotions to attract new small customers Advertisements to attract new corporate customers Small customers Corporate customers 8000 500 8000 600 200 100 120 70 90 37 300 50 70 40 RM 50,000 RM 250,000 Required: 1. Calculate the contribution margin percentage of the three types of services offered by Pantas Delivery during the past year. (3 marks) 2. Prepare income statement and calculate the profitability of the two customer groups. (16 marks) 100% 10:29 AM Tue 12 Jan 4 of 4 No of delivery investigations web.whatsapp.com 90 37 300 50 70 40 No of overdue accounts followed up No of initial sales calls to corporate customers No of credit checks on corporate customers Promotions to attract new small customers Advertisements to attract new corporate customers Required: RM 50,000 RM 250,000 1. Calculate the contribution margin percentage of the three types of services offered by Pantas Delivery during the past year. (3 marks) 2. Prepare income statement and calculate the profitability of the two customer groups. (16 marks) 3. Discuss the relative profitability of the three products and the two customer groups. (6 marks) 4. Based on your financial analysis, do you agree with the recommendations of the Next Day delivery manager, or of the managing director? Why? (5 marks) (Total 30 Marks) 100%