Frequently Ordering

Customers Less Frequently

Ordering Customers

Sales orders $35,0003,500$

Order size $10100$

Average unit manufacturing cost $$50$ $$50$

Order$-$processing activity costs:

Processing sales orders $$2,365,000$

Order$-$filling capacity is purchased in steps $($order$-$processing clerks$)$ of $1,000,$ each step costing $$40,000$; variable order$-$filling activity costs are $$30$ per order. The activity capacity is $39,000$ orders; thus, the total order$-$filling cost is $$2,715,000[(39$ steps $\backslash$times $$40,000)+($$$30\backslash$times $38,500)].$ Current practice allocates ordering cost in proportion to the units purchased.

Deeds recently lost a bid for $100$ units. $($The per$-$unit bid price was $$2$ per unit more than the winning bid.$)$ The manager of Deeds was worried that this was a recurring trend for the larger orders. $($Other large orders had been lost with similar margins of loss.$)$ No such problem was taking place for the smaller orders; the company rarely lost bids on smaller orders.

Required:

$1.$ Calculate the unit bid price offered to Deeds$$s customers assuming that order$-$filling cost is allocated to each customer category in proportion to units sold. Note: Do not round interim calculations. Round your final answer to the nearest cent.

$fill in the blank $1$

$75\mathrm{.}50$

$2.$ Assume that a newly implemented ABC system concludes that the number of orders placed is the best cost driver for the order$-$filling activity. Assign order$-$filling costs using this driver to each customer type and then calculate the new unit bid price for each customer type. Note: Do not round interim calculations. Round the final order cost allocation to the nearest whole dollar. Round final bid prices to the nearest cent.

Order Cost Allocation Bid Price

Frequently ordering $fill in the blank $2$

$2,468,182$

$fill in the blank $3$

$79\mathrm{.}87$

Less frequently ordering $fill in the blank $4$

$246,818$

$fill in the blank $5$

$70\mathrm{.}99$

Using this new price, would Deeds have won the bid for the $100$ units recently lost?

Yes

$3.$ What if Deeds offers a discount for orders of $35$ units or more to the frequently ordering customers? Assume that all the frequently ordering customers can and do take advantage of this offer at the minimum level possible. Compute the new order cost allocation and bid price. Note: Round the number of steps UP to the nearest whole number, using that result in future calculations. For the Order Cost Allocation and Bid Price, do not round interim calculations. Then round the final order cost allocation to the nearest whole dollar and final Bid Price the nearest cent.

Order Cost Allocation Bid Price

Frequently ordering $fill in the blank $7$

$714,815$

$fill in the blank $8$

$72\mathrm{.}86$

Can Deeds offer the original price from Requirement $1$ to the frequently ordering customers and not decrease its profitability?

Yes