Numerical Exercise (A) You are an account manager at Owens & Minor. You have two customers on a stockless program. Below are each customer's activity levels, activite rates, and customer level costs. See Alpha Hospital - Customer Profitability Statement (Exhibit 4 in Owens & Minor, Inc. Case A). Draft a customer profitability statement for Beta Hospital using the format shown in Exhibit 4. Activity Rates Edi Order Cost Non-Edi Order Cost Line Cost Delivery Cost Interest Cost Emergency Order Cost Shipping and Handling Cost Activity Levels Sales/month Orders/month Lines/month Deliveries/month $4.50/edi order $9.01/non-edi order $0.66/line $457.58/delivery 8.64% per annum $25/emergency order $130/delivery Labeling Customer Level Costs Procurement 1,000 Account Mgmt 991 Occupancy 1,007 Group Fees 750 Alpha Hospital Beta Hospital $150,000 750 $150,000 333 15,000 10,000 12 10 % EDI orders 25% 95% Accounts Receivable $300,000 $75,000 Emergency Orders/month 20 10 Vendor Discounts Cost-Plus % $4,035 15.0% $4,035 15.0% (B) It is one year later. Both your customers switched to activity-based pricing nine months ago. You charge each customer what it costs you to provide service, making margin only on distributor discounts. Draft new customer profitability statements for both Alpha Hospital and Beta Hospital using the new activity drivers shown below. What is the cost-plus equivalent of the activity fee each customer is charged? Explain why each customer responded differently to activity-based pricing. Activity Levels Alpha Hospital Beta Hospital Sales/month Orders/month Lines/month Deliveries/month $150,000 $300,000 400 11,000 660 20,000 7 10 % EDI orders 95% 95% Accounts Receivable $75,000 $150,000 Emergency Orders/month 6 6 Vendor Discounts $4,035 $8,070 Numerical Exercise Solution Template Cost Driver EDI Orders Non-EDI Orders Lines Deliveries Days Sales Outstanding Emergency Orders Shipping and Handling Product Sales Cost Plus Margin ABP Fees Total Revenue COGS Alpha Beta Alpha 1 Beta 1 Rate Volume Volume Volume Volume 4.5 187.5 9.01 562.5 0.66 15,000 457.58 12 8.64%/Yr. 300,000 25 20 130 12 150000 22,500 172,500 150,000 Vendor Discounts 4,035 4,035 4,035 8,070 Gross Margin 26,535 EDI Order Costs 844 NonEDI Order Costs 5,068 Line Costs 9,900 Shipping and Handling 1,560 Delivery Cost 5,491 Emergency Orders 500 Interest 2,160 Procurement 1,486 Labeling 1,000 Account Management 991 Occupancy 1,007 Group Fees 750 Net Operating Profit -4,222 Cost Plus/Equivalent Cost Plus 15%