C. Are the accounting customer profitability measures provided by the initial customer profitability system positive (i.e., provide supportive cost information that leads Jamestown managers to make better decisions about corporate profitability), negative (i.e., provide cost information that leads Jamestown managers to make worse decisions about corporate profitability) or neutral (i.e., provide cost information that does not affect Jamestown managers decisions about corporate profitability)?

Jamestown Electric Supply Company: Assessing Customer Profitability special packaging requirements. Specifically, management estimates that orders requiring special services take about three times as much labor per dollar of sales as those orders that do not require any special services. EXHIBIT 6 Additional Customer Data: Alternate Customer Profltablity System The information on W&S costs and production costs has been discussed at several management meetings. Executives' sentiments vary significantly about whether an altemate customer profitability system is necessary. Some executives think that it is just not worth the time, energy, and cost to develop and implement a more detailed customer profitability system. One executive, Jack Hannah, spoke candidly against developing an alternate customer profitability system, stating, "We already have a system in place. Besides, it probably will all avcrage out in the end, so why go to all the time and trouble?" However, other executives believed more analysis was necessary. For instance, Mandy White, Jamestown's chief accountant, stated. "I think we should take a closer look at the information we already have. Maybe we should use the data we gathered to look at the profitability of a few of our customers and sec how that comes out." After reading the information regarding Jamestown's industry, strategic focus, and initial and alternate customer profitability systems, respond to the following questions. A. Rank Alanson, Boyne, and Conway from most profitable to least profitable according to the initial system's estimate of the contribution of each customer to Jamestown's bottom- line profitability. What are Jamestown's options regarding the treatment of these three customers? Based on this initial customer profitability analysis, what action do you recommend Jamestown take with each of these three customers? What, if any, issues/challenges do you see with the customer profitability measurements from the initial customer profitability system, provided in Exhibit 2? What assumption(s) is the customer profitability system making implicitly, with respect to the way in which EXHIBIT 5 Cost Drivers in the Key Activity Areas within the Warehousing and Shipping Process B. C. Are the accounting customer profitability measures provided by the initial customer Facilities and Inventory Storage and Handling managers to make better decisions about corporate profitability), negative (i.e., provide Average days of inventory on band Pulling and Shipping Products corporate profitability) or neutral (i.e., provide cost information that does not affect ty)? D. Now consider the alternate customer profitability system that Jamestown is contemplating. How does the alternate system differ (c.g., underlying assumptions, categorization and Total number of orders Number of orders requiring special packaging E. Use the data provided from the alternate customer profitability system to calculate customer service charges for W&S activities for Alanson, Boyne, and Conway. Next, estimate the Average size of orders customers according to this new alternate customer profitability system. Rank Alanson, Boyne, and Conway from most profitable to least profitable according to the alternate system. Explain any significant differences in the estimated contribution to profitability of these three customers when using the initial customer profitability system Somewhat reluctantly, most of the managers at the last meeting decided Ms. White made a good point about looking more carefully at the data. Therefore, additional data were gathered about the three customers used in the initial system. Exhibit 6 displays the additional customer F. G. Explain why the alternate system does or does not provide better information about customer profitability than the initial system. Based on the results of the alternate customer profitability system, how might Jamestown alter its treatment of Alanson, Boyne, and H. How might Jamestown need to alter its incentive system for management to achieve larger profits? What other issues might Jamestown management want to consider in implementing and operating a customer profitability system? Issues in Accounting Education Jamestown Electric Supply Company: Assessing Customer Profitability special packaging requirements. Specifically, management estimates that orders requiring special services take about three times as much labor per dollar of sales as those orders that do not require any special services. EXHIBIT 6 Additional Customer Data: Alternate Customer Profltablity System The information on W&S costs and production costs has been discussed at several management meetings. Executives' sentiments vary significantly about whether an altemate customer profitability system is necessary. Some executives think that it is just not worth the time, energy, and cost to develop and implement a more detailed customer profitability system. One executive, Jack Hannah, spoke candidly against developing an alternate customer profitability system, stating, "We already have a system in place. Besides, it probably will all avcrage out in the end, so why go to all the time and trouble?" However, other executives believed more analysis was necessary. For instance, Mandy White, Jamestown's chief accountant, stated. "I think we should take a closer look at the information we already have. Maybe we should use the data we gathered to look at the profitability of a few of our customers and sec how that comes out." After reading the information regarding Jamestown's industry, strategic focus, and initial and alternate customer profitability systems, respond to the following questions. A. Rank Alanson, Boyne, and Conway from most profitable to least profitable according to the initial system's estimate of the contribution of each customer to Jamestown's bottom- line profitability. What are Jamestown's options regarding the treatment of these three customers? Based on this initial customer profitability analysis, what action do you recommend Jamestown take with each of these three customers? What, if any, issues/challenges do you see with the customer profitability measurements from the initial customer profitability system, provided in Exhibit 2? What assumption(s) is the customer profitability system making implicitly, with respect to the way in which EXHIBIT 5 Cost Drivers in the Key Activity Areas within the Warehousing and Shipping Process B. C. Are the accounting customer profitability measures provided by the initial customer Facilities and Inventory Storage and Handling managers to make better decisions about corporate profitability), negative (i.e., provide Average days of inventory on band Pulling and Shipping Products corporate profitability) or neutral (i.e., provide cost information that does not affect ty)? D. Now consider the alternate customer profitability system that Jamestown is contemplating. How does the alternate system differ (c.g., underlying assumptions, categorization and Total number of orders Number of orders requiring special packaging E. Use the data provided from the alternate customer profitability system to calculate customer service charges for W&S activities for Alanson, Boyne, and Conway. Next, estimate the Average size of orders customers according to this new alternate customer profitability system. Rank Alanson, Boyne, and Conway from most profitable to least profitable according to the alternate system. Explain any significant differences in the estimated contribution to profitability of these three customers when using the initial customer profitability system Somewhat reluctantly, most of the managers at the last meeting decided Ms. White made a good point about looking more carefully at the data. Therefore, additional data were gathered about the three customers used in the initial system. Exhibit 6 displays the additional customer F. G. Explain why the alternate system does or does not provide better information about customer profitability than the initial system. Based on the results of the alternate customer profitability system, how might Jamestown alter its treatment of Alanson, Boyne, and H. How might Jamestown need to alter its incentive system for management to achieve larger profits? What other issues might Jamestown management want to consider in implementing and operating a customer profitability system? Issues in Accounting Education