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May i have the solution of case 7?

Regarding on the solutions and the justification of the case 7

Case 7 Customer Profitability at Stoke plc Introduction Managers at Stoke plc have been using various teams to collect activity-based data since 2000. Each team has consisted of one or more management accountants working closely with department managers. The teams typically work for 3-6 months on data collection and developing spreadsheets. To date the teams have mainly focused on product costing. Recently two teams have been set up to collect data to improve the company's understanding of customer-related costs and profitability. One team has looked at distribution costs and the second at order related costs. Only 3 customers were included in the analysis. Theses 3 customers represent 10`% of total sales. The company has approximately 250 customers in total. Finally the teams only considered labour related costs and direct costs for the cost pools. The first objective for each team was to estimate the total annual overhead cost and annual volume for each cost driver. As the company only focused on three customers the data was quickly estimated. The second objective was to estimate the percentage of each cost driver per customer. Collecting Data The management accept that a 'cost sampling' or snapshot' approach is the best way to identify key activities and their costs. This technique helps the department to develop estimates of how much time is devoted to different activities. Then by using an average hourly rate for all staff managers will be able to estimate the total annual cost of an activity. The decision to use an average hourly rate for all staff will save time. Managers decided that between 4 to 8 activities should to be identified by each team. The possibility of identifying 20-30 activities was considered but this was rejected because there was very little time to do the work. For the whole exercise it was felt that the information must not take too long to collect and interpret. Most of the managers involved with the new teams have little experience of collecting data regarding activities and cost drivers. With some activities several cost drivers were discussed. This confused some managers who felt unclear why a cost driver was rejected or accepted. The management accountants believed these problems would not affect the accuracy of the data. ABC data Team 1 - Order related overheads (Data based on 3 customers) Activity cost pool Changes to orders Pre-sales support Post-sales support Delayed payments Order processing Invoicing Cost driver Annual overhead Annual volume cost for the 3 for the 3 customers customers Number of order amendments Number of hours of pre-sales support Number of hours of post-sales support Number of delayed payments over 3 months Number of orders Number of invoices 50,000 3,000 100,000 3,800 100,000 2,200 70,000 1,250 60,000 25,000 20,000 22,500 Team 2 Distribution costs (Data based on 3 customers) Distribution related overhead costs Storage expenses Requisition handling Standard deliveries Special deliveries Cost driver Average cartons in stock Number of requisitions Number of standard deliveries Number of special deliveries Annual Annual overhead cost volume for the for the 3 3 customers customers 12,000 5,000 8,500 10,000 5,000 3,000 12,800 500 Customer sales and activity analysis Customer Annual Sales North 175,000 South 178,000 East 173,000 The following table summarises the percentage of each cost driver per customer. Customer Number of order amendments Number of hours of pre-sales support Number of hours of post-sales support Number of delayed payments Number of orders Number of invoices Average cartons in stock Number of requisitions Number of standard deliveries Number of special deliveries North % South % East % 20 16 2 10 10 10 10 20 40 30 10 20 15 12 30 30 30 30 40 60 Total % 20 100 30 100 100 20 10 100 30 100 50 100 30 100 40 100 50 100 20 100 Questions Question 1 Calculate the profit for each customer based on the ABC data and discuss what steps the company should consider to improve the profitability of individual customers. Question 2 Assume that the company has a complete analysis of all customer-related revenues and costs. Discuss why such data is needed and how it can be used to help a company compete profitably