Ezi-sleep Company produces mattresses and sells these them to its commercial customers, which are 20 retail outlets. Of the 20 retail outlets, 19 commercial customers are small furniture stores, which are owned separately and one (1) large retail chain with numerous retail outlet stores.

The retail chain central purchasing buys 60% of the mattresses produced by Ezi-sleep Company, which are warehoused centrally and distributed to its outlets at the large retail chains expense. The 19 smaller commercial customers purchase mattresses in approximately equal quantities and their orders are about the same size.

Currently, customer-driven costs are assigned to customers based on units sold. You have been appointed the management accountant at Ezi-sleep. Data concerning Ezi-sleeps customer activity are as follows:

	Large Retailer Chain		Smaller Retailers
Units purchased		36,000	24,000
Orders placed		12	1,200
Number of sales calls		6	294
Manufacturing costs	$	14,400,000	$9,600,000
Order filling costs allocated*	$	484,800	$323,200
Sales force costs allocated*	$	240,000	$160,000

*Currently allocated on sales volume (units sold).

REQUIRED: All requirements for case Study 1 must be answered

1) Assign manufacturing, ordering and selling costs to the two customers group (large retailer and small retailers) using the traditional units sold allocation basis and then calculate the

total cost per mattress for each customers group, using this unit-level driver.

2) Assign manufacturing, ordering and selling costs to the two customer group by using an ABM approach allocation basis. Round activity rates and activity costs to the nearest dollar. Calculate the total cost per mattress for each customers group.

3) Compare your answer from requirement 1 and 2. Comment on the accuracy and usefulness of the different cost per mattress for each customers group for strategic decision-making.

4) Ezi-sleeps manufacturing competitor offered a 12.5% discounted off the current selling price charged by Ezi-sleep to the large retail chain. Assume Ezi-sleep has calculated its selling price using a total cost plus 10% mark-up on the total cost per mattress calculated in requirement 1. What strategic pricing decision may be made (from the information in requirements(1, 2, and 3) to offer a new selling price to retain the business of a large retail chain?

5) Previously, Ezi-sleep had 9% profit margin. How could Ezi-sleep use information from the customer profitability analysis and target costing method to return to this 9% profit margin while matching the competitors selling price for a large retail chain?