Question
JIT Distributors Non-JIT Distributors Sales orders 700 70 Sales calls 70 70 Service calls 350 175 Average order size 750 7,500 Manufacturing cost/unit $125 $125
JIT Distributors | Non-JIT Distributors | ||||
Sales orders | 700 | 70 | |||
Sales calls | 70 | 70 | |||
Service calls | 350 | 175 | |||
Average order size | 750 | 7,500 | |||
Manufacturing cost/unit | $125 | $125 | |||
Customer costs: | |||||
Processing sales orders | $3,080,000 | ||||
Selling goods | 1,120,000 | ||||
Servicing goods | 1,050,000 | ||||
Total | $5,250,000 |
Required:
1. Calculate the total revenues per distributor category, and assign the customer costs to each distributor type by using revenues as the allocation base. Selling price for one unit is $150.
JIT | Non-JIT | |||
Sales (in units) | fill in the blank 1 | fill in the blank 2 | ||
Sales | $fill in the blank 3 | $fill in the blank 4 | ||
Allocation | $fill in the blank 5 | $fill in the blank 6 |
2. Conceptual Connection: Calculate the customer cost per distributor type using activity-based cost assignments.
JIT | Non-JIT | |||
Ordering costs | $fill in the blank 7 | $fill in the blank 8 | ||
Selling costs | $fill in the blank 9 | $fill in the blank 10 | ||
Service costs | $fill in the blank 11 | $fill in the blank 12 | ||
Total | $fill in the blank 13 | $fill in the blank 14 |
For non JIT distributors by how much can the price be decreased without affecting customer profitability? Round your answer to the nearest cent.
$fill in the blank 15 per unit
3. Assume that the JIT distributors are simply imposing the frequent orders on Stillwater Designs. No formal discussion has taken place between JIT customers and Stillwater Designs regarding the supply of goods on a JIT basis. The sales pattern has evolved over time. As an independent consultant, what would you suggest to Stillwater Designs' management?
It sounds like the JIT buyers are switching their inventory carrying costs to Stillwater Designs without any significant benefit to Stillwater Designs. Stillwater Designs needs to
increasedecreaseincrease
prices to reflect the additional demands on customer support activities. Furthermore, additional
price increasesprice decreasesprice increases
may be needed to reflect the increased number of setups, purchases, and so on, that are likely occurring inside the plant. Stillwater Designs should also immediately initiate discussions with its JIT customers to begin negotiations for achieving some of the benefits that a JIT supplier should have, such as
long-termshort-termlong-term
contracts. The benefits of
long-termshort-termlong-term
contracting may offset most or all of the increased costs from the additional demands made on other activities.
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