Managers at Aiwa Co. 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. To date the teams have mainly focused on product costing. Recently two teams have been set up to collect data to improve the companys understanding of customer-related costs and profitability. One team has looked at distribution costs and the second at order related costs. The company has approximately 250 customers in total. Only 3 customers were included in the analysis. These 3 customers represent 10% of total sales. 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. 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 question is related to Abc analysis basically customer profitability

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ABC data Team 1 - Order related overheads (Data based on 3 customers) Activity cost pool Cost driver Annual overhead cost Annual volume for for the 3 customers the 3 customers Changes to orders Number of order amendments $50,000 3,000 Pre-sales support Number of hours of pre-sales support $100,000 3,800 Post-sales support Number of hours of post-sales support $100,000 2,200 Delayed payments Number of delayed payments over 3 months $70,000 1,250 Order processing Number of orders $60,000 20,000 Invoicing Number of invoices $25,000 22,500 Team 2 Distribution costs (Data based on 3 customers) Distribution related overhead Cost driver Annual overhead Annual volume cost for the 3 costs for the 3 customers customers Storage expenses Average cartons in stock Requisition handling Number of requisitions Standard deliveries Number of standard deliveries Special deliveries Number of special deliveries Customer sales and activity analysis Customer North South Annual Sales $175,000 $178,000 $12,000 $8,500 $5,000 $12,800 5,000 10,000 3,000 500 East $173,000 The following table summarises the percentage of each cost driver per customer. Customer North South East Total % % % % Number of order amendments 20 2 20 100 Number of hours of pre-sales support 16 10 30 100 Number of hours of post-sales support 10 15 20 100 Number of delayed payments 10 12 10 100 Number of orders 10 30 30 100 Number of invoices 20 50 100 Average cartons in stock 40 30 30 100 Number of requisitions 30 30 40 100 Number of standard deliveries 10 40 50 100 Number of special deliveries 20 60 20 100 30 Required a. Calculate the profit for each customer based on the ABC data b. Discuss what steps the company should consider to improve the profitability of individual customers C. Assume that the company has a complete analysis of all customer-related revenues and costs and make your recommendations d. Discuss why such data is needed and how it can be used to help a company compete profitably