Bright Forever Flowers (BFF) is a producer of artificial flowers used in a variety of arrangements. BFF has three main customer groups: retail stores; mail catalogues and on-line platform; and, florist/flower shops. While BFF sells a variety of flowers, they all require much the same basic materials: silk, beads, and stem.

Table 1 contains a summary of last years financial results.

The owner and manager of BFF Cheryl Bradford is seeking more analysis with respect to the selling, general and administration (SG&A) costs. She has had an activity analysis of these costs undertaken. Tables 2 and 3 contain the results of this analysis.

What was left, was to calculate the profitability of the various types of customers using the ABC analysis.

Question:

Using the ABC analysis, calculate the: - activity cost rate for each activity cost pool - profitability of each of the three customer groups. A Table has been provided to guide your response to this part.

How might Cheryl use the ABC-generated customer profitability analysis to drive performance? State TWO clear uses, including references to BFFs profitability analysis and related information.

Table 1: BFF Financial Results Summary by customer group Catalogue and online platform $35 000 000 $16 450 000 $18 550 000 $ 9 333 000 $9 217 000 26.33% Retail Stores Florist shops Total $25 000 000 $12 000 000 $13 000 000 $6 667 000 $6 333 000 25.33% $30 000 000 $15 000 000 $15 000 000 S 8 000 000 $7 000 000 23.33% $90 000 000 $43 450 000 $46 550 000 $24 000 000 $22 550 000 25% Revenue Cost of goods sold Gross Margin Less S G & A Profit before tax Profit/revenue % Table 2: Activity cost pools and cost drivers. Activity cost pool Cost pool amount Driver Driver frequency 2 500 000 Taking orders Handling inquiries Processing invoices Processing payments Maintenance customer database Develop and print $8 000 000 catalogs Mailing catalogues General overhead Orders taken 1 000 000 customer 1 500 000 $2 000 000 2 000 000 $3 000 000 Customer calls Invoices sent Payments processed Customers 500 000 1 200 000 2 000 000 500 000 of Catalogues printed 2 500 000 $1 500 000 $3 500 000 Catalogues mailed Sales revenue 1 800 000 $90 000 000 Table 3: Consumption of activity resources by customer group Retail Stores Catalogue and online platform Florist shops Total Orders taken Customer inquiries/calls Invoices sent Payments processed Customers Catalogues printed Catalogues mailed Sales revenue 250 000 75 000 150 000 125 000 600 000 300 000 1 000 000 500 000 400 000 750 000 75 000 400 000 150 000 $25 000 000 800 000 650 000 125 000 700 000 250 000 $30 000 000 1 200 000 2 000 000 500 000 2 500 000 1 800 000 $90 000 000 600 000 300 000 1 400 000 1 400 000 $35 000 000