Managerial Accounting -Creating Value in a Dynamic Business Environment, Ronald W.Hilton & David E. Platt 10e, Chapter 5 (p.164-223)

Explain and evaluate Customer Profitability Analysis application of Patio Grill Company demonstrated toward the end of the chapter (Exhibit 5-13, p.186).

into servicing them.Athis point, we negotiated vith them to eliminate certain discount they were receiv- Pfizer (fomerty Warner Lambert) Exhibit 5-13 Customer-Profitabilit Analysis br Five Designated Customers: Patio Grill Company Patio Grill Company as unit-level, batch-level, product-1ine level, customer-level, and facility- or general operations laval costs. In this use of activity-based costing, the cost management team is focusing on the customer-related costs. After an extensive analysis and several interviews with personnel throughout Patio Grill Oompany, the cost management team came up with the ABC analysis in Exhibit 5-126 Based on the activity-based castinginfomation, the cost management team assessed the profitability of each of Patio Grill Oompany's customer relationships. Detailed i mation from that analysis for five of these cu rs appears in the Excel spreadsheet in E3 Microsoft Excel-customer profitability Analysis far Five Desi customers Type a question for help heert Fymet Dole Date Ninco be p F20 Designated Customers By 30igt Customer Code) customer 106 customer 107 customer 112 customer 113 customer 119 Sales revenue 320.000 3400,000 S 5.500,000 490.000 S 1.960,000 5 Cost goods sold 6 Gro55 margin 1100000 670,000 S 1610,000 110 o00 450.000 Selling and administrative costs: 7 Generalgeling costs 62.000 20.000 S 530.000 s 366.000 S 160.000 General administrative costs 101,000 110,000 265,000 103,000 20,000 Customer related costs 10 Order proc 11,100 80,250 16,050 22.200 38,400 essing Sales contacts 22.000 13400 32.000 24100 Sales visits 4.000 20,000 4.000 38.0000 32.000 Designengineeringchanges 03.000 06.000 34.000 112.000 68.000 16 Special handling l30000 80,400 15.300 3.300 85.400 18 Total Beling and acministratve cost 900.T00llS 689,050 890,080 599,200 Msheeti. important point that could be overlooked he is that activity-based costing analysis can be used in avery An specific targeed manner to address a particular management problem In this case, the ABC focus is customer profitability analysis. This is the esserce of activity-based management, using the results of an ABCanalysis manage anenterprise more effectively