please help me with that problem
Johnson Beverage Problem - further information Johnson Beverage is trying to determine which of their customers create the best profit. Companies do this all the time. Many accounting systems in companies have a standard report called Customer Profitability Report. To do this, they have created on your Exhibit 1, a comparison of 4 of their customers. From that report you see that Midwellen is the most profitable. Here is the problem with that report. The 3 lines down to Gross Margin (Gross Profit) are fine. We know how much the revenue is by multiplying number of cases times their price, the cost of goods is just number of cases times $13.10, and the Gross Margin is the subtraction of revenue minus cost. But the next line is the problem. The customer service cost(THINK OF THIS AS OVERHEAD) is being allocated at 10% of the net revenue. Is that the best way to do that? KEEP IN MIND - THIS CUSTOMER SERVICE COST IS JUST FOR THE REPORT CALCULATION - THE CUSTOMERS ARE NOT BEING BILLED FOR THAT AMOUNT. Think of it like this. Two customers of Amazon. One buys products and pays, no problems, no returns. The other customer is always returning products, always calling and taking up a customer service person's time, just costing Amazon more money which results in less profit. This customer does not get billed for this extra customer service but is clearly a less profitable customer for Amazon. Your job is to allocate that customer service cost differently and see if it changes the profitability of customers. Table 1, page 1 lists the 5 customer service type costs, total $1,200,000. Exhibit 2 under the column Total for JBI, shows the numberlof each activity creating those costs. For example, Product Handling costs of $672,000 is based on a company total of 800,00 cases sold. Dividing $672,000 by 800,000 cases is $.84 per case. So Saver Superstore, who buy 80,000 cases would be allocated 80,000 times $.84 or $67,200 for that activity Each of these 5 customer service costs has a cost per activity like that, and each customer will be allocated their amount based on their use of that activity. NOTE: Delivering the product is based on 2 things, number of deliveries and miles per delivery, or $140,000 divided by 44,800 (10 times 4,480) What I want is Exhibit 1, re-calculated with new numbers in the Customer Service Line, creating a new customer profit and % lines. DO THIS USING A SPREADSHEET PROGRAM LIKE EXCEL. SECOND, WHAT SHOULD JOHNSON BEVERAGE DO? GIVE SOME SUGGESTIONS. I AM CREATING A SPOT OF CANVAS TO DROP YOUR SOLUTION IN AND ALSO A DISCUSSION AREA FOR QUESTIONS Insert Draw thare Page Layout Formula Data Neview View Tell me CIVI 14 - A A We - General WB0 : Dele F $ % Com Fee A Da + + 1 W 1 Customer Pro Net Revenue Cost of Goods Sol dress Pratt Customer Service Costa Customer Pro Pro Saver Superstore 51,166.000 1,048.000 120,000 116.800 1.200 0.1 Outar Odd lots $1,192,000 1,045,000 144,000 119,200 24.000 2 Midwie $121,520 104,800 16.720 17,152 4.56 UN Downtown Read $454, VO 393.000 61,500 45,45 16.05 Others $9.06.960 7.885,200 1,177,TRO 996,30 271.382 3.0% Total $12,000,000 10,480,000 1.520,000 1.200,000 320,000 2.7 Total Others $ List prices $15.20 per case cost $1110 per cate Discounts vary by customer Eshiba 2 Customer information) Saver Oscar Superstore Odd lots Price per Care $ 14.60 5 14.30 Number of Cases 80,000 80,000 Number of Orders 16 40 Number of Deliveries 110 600 Miles per Delivery 5 19 Expedited Deliveries 10 250 Sales hits 12 Midween $ 15.19 3.000 20 200 11 110 10 Down Reta 5 15.15 20,000 30 230 4 90 15.06 602,000 M 2,540 15.00 300,000 500 4,480 10 2,500 360 2,020 296 Customer Service Cost Detail Customer Saver Superstores not happy they think they are paying too much In addition to COGS Johnson has Customer Service costs 12 non per year. The overhead See Table 1 Currently located based on of revenue Cou 5 Product Handling Taking Orders from Customer Delivering the Product Expediting Deliveries Sales Total 672,000 100,000 140,000 150,000 10,000 1.200,000 They una report of Profitability by Customer See what $ Can you help them using Activity Based costing Shed
