Question
Activity-Based Customer-Driven Costs Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and
Activity-Based Customer-Driven Costs
Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter:
JIT Distributors | Non-JIT Distributors | ||
Sales orders | 700 | 70 | |
Sales calls | 70 | 70 | |
Service calls | 350 | 175 | |
Average order size | 850 | 8,500 | |
Manufacturing cost/unit | $125 | $125 | |
Customer costs: | |||
Processing sales orders | $3,380,000 | ||
Selling goods | 1,120,000 | ||
Servicing goods | 1,050,000 | ||
Total | $5,550,000 |
Required:
1. Calculate the total revenues per distributor category, and assign the customer costs to each distributor type by using revenues as the allocation base. Selling price for one unit is $150. Round calculations to the nearest dollar.
JIT | Non-JIT | |||
Sales (in units) | $ | $ | ||
Sales | $ | $ | ||
Allocation | $ | $ |
Conceptual Connection: Calculate the customer cost per distributor type using activity-based cost assignments. Round the interim calculations to the nearest dollar.
JIT | Non-JIT | |||
Ordering costs | $ | $ | ||
Selling costs | $ | $ | ||
Service costs | $ | $ | ||
Total | $ | $ |
For non JIT distributors by how much can the price be decreased without affecting customer profitability? Round your answer to the nearest cent.
$ per unit
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