Jack Jepson, owner of lepson Beverage. Inc. (BJ) has just received notice that one of his largest and most loyal customers may want to negotiate a lower price for its product purchases. Data compiled by Jepson's accountant, in which customer service costs are allocated to customers as a percentage of revenue, suggest that the profit margin on the customer is too low to withstand a price decrease. You are asked to design an activity-based system for allocating customer service costs and to use it to estimate customer profitability for several customers. Required: 1. Use the information in case Exhibits 1 and 2 and other necessary data in the case on activities and costs to develop an activity-based cost system for JBI to use to determine customer profitability. Use the system to estimate customer profitability for Supersaver Store, Owens's Oddlots. Whole Supermarket and Midtown Retail. This requirement must be presented as an original Excel worksheet. 2. Compare the estimated costs you calculate using an activity-based cost system to the estimated costs using the current system of allocating customer service costs. What causes the different costing methods to produce different results? Which costing system provides management of JBI with better information? Why? 3. What are the strategic implications of your analysis? What recommendations do you have for the management of Cost of service allocation: Current vs. ABC Jack Jepson, owner of lepson Beverage. Inc. (BJ) has just received notice that one of his largest and most loyal customers may want to negotiate a lower price for its product purchases. Data compiled by Jepson's accountant, in which customer service costs are allocated to customers as a percentage of revenue, suggest that the profit margin on the customer is too low to withstand a price decrease. You are asked to design an activity-based system for allocating customer service costs and to use it to estimate customer profitability for several customers. Required: 1. Use the information in case Exhibits 1 and 2 and other necessary data in the case on activities and costs to develop an activity-based cost system for JBI to use to determine customer profitability. Use the system to estimate customer profitability for Supersaver Store, Owens's Oddlots. Whole Supermarket and Midtown Retail. This requirement must be presented as an original Excel worksheet. 2. Compare the estimated costs you calculate using an activity-based cost system to the estimated costs using the current system of allocating customer service costs. What causes the different costing methods to produce different results? Which costing system provides management of JBI with better information? Why? 3. What are the strategic implications of your analysis? What recommendations do you have for the management of Cost of service allocation: Current vs. ABC
